BCAJ | Bombay Chartered Accountant Journal

The implementation of IFRS required a well coordinated
approach among various regulators. Understanding this need, the Ministry of
Company Affairs (MCA) set up a high powered group comprising of various
stakeholders such as NACAS, SEBI, RBI, IRDA, ICAI, IBA and CFOs. The core group
was supported by two sub-groups. The sub-groups will have further meetings with
regard to the roadmap for banking and insurance companies which is still under
discussion.

The author completely supports the roadmap. This is a
historic event — one that would catapult India, its entities and finance
professionals to much greater heights.

Under the roadmap, there would be two separate sets of
Accounting Standards u/s 211(3C). The first set would comprise of standards that
are converged with IFRS and would apply to specified companies in phases. The
second set, comprising of existing Indian accounting standards, would apply to
all other companies, including SMEs.

Phase 1 companies will prepare their opening IFRS balance
sheets on 1 April, 2011. Phase 1 would apply to listed and non-listed companies
with a net worth of greater than Rs 1000 crores, and to companies whose
securities are listed on a foreign stock exchange. If one has a calendar year,
then the opening IFRS balance sheet will be prepared not on 1 April, 2011 but 1
January, 2012. The listing requirement will be with regard to securities and
will include a lot of listings in addition to shares, such as ADR, GDR, FCCB,
etc.

Phase 2 companies will prepare their opening IFRS balance
sheets on 1 April, 2013. Phase 2 would apply to listed and non listed companies
with a net worth of greater than Rs 500 crores.

Phase 3 companies will prepare their opening IFRS balance
sheets on 1 April, 2014. Phase 3 would apply to all other listed companies. IFRS
standards will not apply to non-listed companies with a net worth of less than
500 crores and to SMCs, though they can voluntarily apply to IFRS.

The draft of Companies (Amendment) Bill proposing changes to
the Companies Act is under preparation. The amendment is required to make the
Companies Act consistent with the requirements of IFRS. These changes include
section 391, 394, 78, 100, Schedule VI, Schedule XIV, etc. A new section will
also be introduced to make consolidation mandatory under the Companies Act, even
for non-listed companies.

IFRS standards will be notified by 30 April, 2010. The author
does not expect any carve-ins or carve-outs, and it would be possible for Indian
entities to provide a dual statement of compliance both under IFRS, as adopted
by India, and IFRS, as issued by IASB. However, one should be prepared for any
elimination of alternate accounting treatments provided under IFRS standards.
For example, in the case of long-term employee benefits, it is possible that
actuarial gains and losses may have to be recognized in the P&L account in full,
and the corridor approach or full recognition in ‘Reserves’, allowed under IFRS
of IASB, is not allowed under IFRS as adopted in India.

Net worth has not been defined, but probably it means what we
have always been used to: share capital and free reserves. It would include
securities premium but not fixed asset revaluation reserve. P&L debit balance
should be subtracted from share capital and reserves. Net worth would be based
on Indian GAAP stand-alone account of the entity.

To determine applicability, the net worth for which balance
sheet date should be considered? Theoretically, it could be 31 March 2009, 2010
or 2011 or all three. It is unlikely to be 31 March, 2011 for practical reasons.
Doing the net worth test based on the balance sheet date of 31 March, 2011, will
leave entities with little or no time to prepare for IFRS for the year 2011-12
(actually the first quarter of 2011-12 for listed entities). Therefore, in the
author’s view, the test should be done based on the balance sheet on 31 March,
2009. The MCA should confirm this by way of guidance.

Questions have been raised on whether IFRS comparative
numbers are required from 2010-11. Whilst this will be clarified in further
guidance, it would make enormous sense to prepare IFRS comparatives for the
following reasons:

1. IFRS comparatives (2010-11), instead of Indian GAAP
comparatives, would make 2011-12 IFRS financial statements meaningful to all
stakeholders

2. Preparing IFRS from 2010-11 will enable one to be ready
for robust IFRS reporting in the first quarter of 2011-12

3. The 2011-12 IFRS financial statements will be compliant
both with Indian law and IFRS, as issued by IASB. Hence dual statements of
compliance can be made by entities.

4. If 2010-11 IFRS comparatives are not prepared, then
effectively 2011-12 IFRS statements become comparatives for 2012-13 IFRS
statements. Under IFRS 1 framework, the comparative year’s accounting policy
should be consistent with the first IFRS financial statements. This may mean
that the already prepared and published numbers of 2011-12 IFRS financial
statements may undergo a change subsequently to make them consistent with the
2012-13 IFRS accounting policies.

Therefore, from practical considerations, the transition date
should be 1 April, 2010, instead of 1 April, 2011.

There may be good news for early preparers, but one that
needs endorsement by further guidance from the MCA. If an entity has already
prepared/published IFRS financial statements, then on 1 April, 2011 one does not have to reconvert again. In other words under IFRS,
an entity can be a first time adopter only once.

Another related question is whether entities not covered at all in any of the phases can adopt IFRS or those covered in later phases can apply IFRS in earlier phases. The roadmap is clear that a company which is not covered under any of the phases may adopt IFRS on a voluntary basis. The author believes that similarly, a company covered in later phases should be allowed to apply IFRS early. Since the issue is an important one, the MCA should provide guidance on the matter as soon as possible. Allowing voluntary adoption of IFRS will help a subsidiary, joint- venture or associate of a company covered under the roadmap to use their IFRS accounts prepared for group reporting and consolidation purposes, and for stand-alone statutory financial reporting also.

Changes in various other legislations would be required, e.g., SEBI will need to change the require-ments relating to interim financial statements to make them compliant with IAS 34. The RBI will need to look at its prudential norms, incorporate appropriate prudential filters, etc., as and when IFRS becomes mandatory for banks and so on.

A key concern has been the IFRS implications with regard to income-tax. Recently a committee has been set up by CBDT to look into the impact of IFRS on income tax computation and income tax legislation. The Indian tax authorities will certainly need some time to look into this whole aspect as well as to make appropriate changes to the Income Tax Act, if required. It is, therefore, likely that for some years Indian GAAP may continue as the base for determining taxable income. Besides, it is almost unlikely that some assessees in India will be taxed based on IFRS numbers and others on Indian GAAP numbers. In simple words, for some years to come, an entity’s ERP system should enable generation of both Indian GAAP and IFRS numbers: IFRS for statutory reporting and Indian GAAP for income -tax purposes. Similarly, there would be indirect tax issues. For example, under IFRS, revenue numbers would change and that may have impact on the license fees that telecom companies pay or VAT, etc.

The MCA should provide immediate guidance on these various issues. There will be many challenges, but they come with exciting opportunities. With IFRS, India can aspire to become the accounting hub of the world. Finally, a quote from Charles Darwin: “It is not the strongest of the species that survives, nor the most intelligent, but the most responsive to change”.

BCAJ Admin

Vikram Aur Vetal

Cancerous Corruption

Vikram was fond of moving around in the graveyard in the
horrifying night to catch Vetal after day-long practice as chartered accountant.
For Vikram, friendship with Vetal was real education. Vetal being a spirit of
intelligent human frustrated in his lifetime, was still on the earth
posthumously to find answers to innumerable questions lingering in his mind
during his stint as human being. He developed friendship with Vikram. After
playing hide and seek game, Vikram used to catch Vetal in the wee hours of
morning. Then he would put Vetal on his shoulder and tread through the woods of
graveyard. Vetal would laugh weirdly in the silence of the graveyard and
thunder :

“So Vikrambhai, you succeeded to catch me once again, keep
walking, don’t look back, if you speak a word I will vanish. Well, I would tell
you a story of a spiritual guru like Bhagwan Rajneesh, Yogi Mahesh or Satya
Saibaba, well, you are clever enough to get the lead . . . . so our spiritual
guru Baba Ramjay was a very revered person. It was believed, after spending many
years in seclusion somewhere in the high altitudes of Himalaya, Baba established
connection with the almighty. He taught his confused disciples how to live life
in peace and tranquility, how to detach the mind from the mundane world and seek
solace beyond the present life. It was not surprising that he had disciples all
over the world, rich and wealthy. In search of peace of mind they were
squandering their wealth for Baba Ramjay. It seemed that Baba Ramjay’s
philosophy of life was “high living and high thinking”. Over a period he amassed
huge wealth in cash and kind through his charitable trusts or otherwise.
Obviously he was being spied on by the Income-tax Department. I mean he was on
the radar of the Department. A raid was conducted on Baba’s Ashram. On that day
his disciples were celebrating the most auspicious day, Baba’s birthday. It was
believed that he was incarnation of great Buddha. Baba chanted “Om Shanti Shanti
Shanti”. One of the disciples in the close circuit of the Baba announced :

“Ladies and gentlemen, for your kind attention those who wish
to express their gratitude towards our revered Baba Ramjay, we have kept
offertory box”

There was a sudden rush towards the offeratory box. What a
phenomenal impact Baba Ramjay had on the minds of his disciples. They were ready
to sacrifice, though not everything, but something which the government cannot
do through full-fledged tax laws. I think the Finance Minister should learn a
lesson from him how to mobilise funds. Jokes apart, Vikrambhai, Baba was about
to leave the “Dhyan Mandir” (meditation centre). A tall and middle-aged person
full of bureaucratic arrogance barged into the Dhyan Mandir along with his
assistants. Without losing much time he disclosed that he and his assistants
were from the Income-tax Department. He ordered all present not to leave the
place till his further order and asked to hand over cellphones to one of his
assistants. Baba Ramjay sank back in the sandal wood throne. When Baba was
trying to use his cellphone, the alert officer recovered the cell-phone from
Baba. Inwardly Baba was very furious at the audacity of the officer. But Baba
kept chanting “Om Shanti Shanti”. What else he could do ? nothing. The alert
officer was the chief of the raid team. He proceeded further. He showed the
search warrant to Baba Ramjay. Baba pretended to be still in trance of
meditation and said, “My child, I see great future for you, I can read from your
face, believe me, our tryst is pre-planned by the destiny . . . . . Om Shanti
Shanti.”

For a few moments the chief forgot his duty and bowed before
Baba to touch Baba’s feet. But after finishing the ritual the chief regained his
sense of duty as Income-tax Officer the moment he smelled sandalwood aroma of
Baba’s throne studded with precious stones and said mischievously, “Baba I will
meet you at some other time to check how great future I have. Right now I have
to record your statement about your great fortune, I mean your wealth, your
income in the present”

Baba realised that the chief was a hard nut. He was a bit
irritated.

Most of the questions Baba ducked by saying “My team of
Chartered Accountants would explain it, right now I am not aware of it”. It took
two hours to complete the recording of the statement. By that time Baba was a
fully grounded person. Baba realised “reality — not spirituality” would work in
this situation. Baba asked his assistant to arrange refreshments for the search
party. Baba and the chief moved from meditation centre to Baba’s closet.

“Look officer, I have a large number of disciples all over
the world. I have connections with political bigwigs, film stars,
industrialists, leading stockbrokers, etc. They adore me in their drawing rooms.
I don’t wish to waste my time in litigations. Let us now negotiate something
reasonable for you and other members of the search party”. Baba as an ordinary
human being exposed his mind to the officer.

The chief was very shrewd. He did not respond to Baba’s offer
instantly. He was thoughtful for a long time. His silence was killing Baba’s
patience. Eventually the chief broke his silence.

“Look Baba, I have strict instructions from the top, no let
up in the investigations. I am helpless.” said the chief. It was more a threat
than honest disclosure.

Thus the raid proceeded. At the end of the raid the chief and
Baba again went to Baba’s closet.

The chief put all the documents, notings and jottings
incriminating Baba and a couple of his close disciples, which the chief had
secreted from others during the course of search, on the table.

“Om shanti shanti” Baba chanted, staring nervously at the
chief.

“Gurudev, look at all these documents and papers, very damaging, they show your clandestine investments abroad, money laundering, violation of FEMA.”

” know, I know but you would agree that I have not earned any money from doing any “illegal business”, I mean black-marketing, smuggling, gambling or the like, all this money comes from my disciples teaching spirituality, guiding them how to live in peace and tranquility, giving them lessons of Yoga. Most of the donations are being accepted in the name of different trusts. All that money is being spent on philanthropic objects.” Baba made a futile attempt to earn sympathy.

“Gurudev, I am not concerned with your philan-thropic deeds, I know your trusts are doing great service to the society at large. But I can’t ignore all these papers and documents which implicate you individually. You are caught with your pants down.” For a while there was pin-drop silence in the room. Baba was flipping through the documents and papers.

“Why don’t you hand over those papers and documents having my reference as if you did not detect them at all ?” asked Baba staring at the chief.

“Ok, but not without price! What about other papers having names of your confidents, I mean second in command of the your Ashram ?” responded the chief.

“It’s for you to decide. Who am I to direct you?” the chief got pampered by Baba’s unexpected respect.

“Well, all right, I understand, so the deal is struck” said the chief.

Baba scribbled a figure on the paper and said, “Is this enough for you ?”

“It’s all right, but what about others?” queried the chief.

“Oh I just forgot them, how many are they?” asked Baba.

“Seven” said the chief making headcount on his fingers.

Again Baba scribbled a figure per member of the raid team on the paper and stared at the chief for his approval.

The chief hesitated, he asked for more.

“Okay, I increase the amount as you desire. Can you give me guarantee you will not pocket the amount meant for them ?” asked Baba.

“I would call them right now if you suspect my honesty towards my colleagues” retorted the chief.

“Om Shanti Shanti Shanti, I am sorry, I am sorry” said Baba with a smile on his face.

Baba got a “clean” chit. His team of chartered accountants managed to convince the assessing officer that in Baba’s case everything was on “board”, nothing hidden or concealed. However Baba’s three disciples were implicated to the hilt for concealment of income and violations of different provisions of the Income-tax Act, FEMA, Customs, etc.

So Vikrambhai, my questions to you:

First how do you differentiate between Baba Ramjay and the chief ?

Second, what works in any given situation ?

Third, both Baba Ramjay and the chief are dishonest persons. Who would you prefer as a friend ?

If you remain silent knowing the answers to my questions, I will chop your head with your sword.” Vetal roared.

Vikarm began to answer,

“Both Baba Ramjay and the chief are social evils. But Baba is more dangerous than the chief. Forget his philanthropic deeds. The chief is an ordinary corrupt bureaucrat. Whereas Baba is an extraordinary corrupt member of the society, he pretends to be ‘spiritual’ for the society at large on the one hand and amasses huge wealth in the name of spirituality on the other hand. I think an avid spiritual person tends to abandon the mundane world in his pursuit to practise the principles of spirituality. Well, the chief has greed for money, whereas Baba has greed for money and ‘image’ both. Greed for image is more powerful than the greed for money.

Answer to your second question, in any given situation it’s not spirituality, ethics traditions or culture, but ‘survival instinct’ of an individual works. This survival instinct varies from individual to individual.

And lastly, I would prefer the chief as my friend instead of Baba Ramjay, Baba Ramjay is more selfish than the chief. He betrays his close confidents. On the contrary, the chief looks after the interest of his colleagues.”

“Vikrambhai, you broke the silence, I am vanishing” again VetaI’s laugh was echoing in the graveyard.

BCAJ Admin

Part B : Some Recent Judgments

I. Supreme Court:

1. Classification:

Marine Logistic Services to Offshore Support Vessels from 1-6-2007 to 15-5-2008 whether could be held as services in relation to mining ?

Union of India v. Indian National Shipowners Association, 2011 (21) STR 3 (SC)

The short question involved in the case relates to the classification i.e., whether the services provided by members of the Association could be covered as services in relation to mining of mineral, oil or gas as provided in section 65(105)(zzzy) of the Finance Act, 1994 (the Act) introduced with effect from 1-6-2007. The Association contended that they were appropriately covered by the provisions of section 65(105)(zzzz) of the Act dealing with supply of tangible goods for hire. This service was introduced from 16-5-2008. The members of the Association provided vessels to ONGC on time-charter basis for the period in question viz. 1-6-2007 to 15-5-2008. The scope of the work in addition also included services such as carrying men and material between base and offshore installation, carrying out routine surveillance in offshore, carrying out rescue operations if and when required and carrying out any other field work which would be within the capability of the chartered vessels. Earlier the High Court held that the nature of work carried out by the members of the respondent could not be said to be the work in relation to mining activity. The Supreme Court also found that none of the activities mentioned in the agreement with ONGC by one of the members could be said to be a service rendered in relation to mining of mineral, oil or gas. Therefore, it affirmed the order of the High Court looking into facts in issues only and left the question of law decided by the High Court, open to be considered at length in appropriate case.

2. Commercial training or coaching services:

Whether computer training institutes were exempt between 10-9-2004 and 15-6-2005?

Commissioner of C.Ex. v. Sunwin Technosolution P. Ltd., 2011 (21) STR 97 (SC)

The Department challenged the judgment of the Jharkhand High Court holding that service tax was not payable by the computer training institutes for the impugned period.

Initially a Notification dated 20th June, 2003 was issued providing exemption to vocational training institutes including computer training institutes. However, the said Notification was effective till 30th June, 2004. Later a new Notification dated 10th September, 2004 was issued, which exempted vocational training institute and recreational training institute from the levy of service tax but did not specifically cover computer training institutes. This Notification, however, was amended by Notification dated 7th June, 2005 (effective from 16th June, 2005), which specifically excluded computer training institutes from the scope of the exemption. Therefore, according to the respondent since the amendment in Notification dated 10th September, 2004 was made effective from June 16, 2005, it implied that computer training institutes stood exempted for the impugned period of 2004-2005 and the liability would arise only from 16th June, 2005.

The Department contended that the Government was fully conscious of the fact that computer training institutes were not to get exemption and the same was clear because these were excluded from the Notification dated 10th September, 2004 and Notification dated 7th June, 2005 was more or less in the nature of clarification. The Apex Court confirmed that since computer training institutes were was out of the scope of exemption from 10-9-2004, the liability existed for the impugned period.

II. High Court:

3. CENVAT credit:

Does Cenvat credit of service tax on input services need to be reversed when inputs are removed?

Commissioner of C.Ex., Chandigarh v. Punjab Steels, 2011 (21) STR 5 (P & H)

The respondent, a manufacturer removed certain inputs from the factory without being used. The respondent did not reverse the CENVAT credit of service tax paid on input service (i.e., Goods Transport Service) so received in relation to purchase of inputs, as no provisions exist in the Rules in this regard. The Tribunal passed an order favouring the respondent. The Revenue filed an appeal raising a question of law whether CENVAT credit availed on input service at the time of receipt of inputs is required to be reversed at the time of clearance of inputs. The Revenue referred to Rule 3(5) of the CENVAT Credit Rules, 2004 (CCR) which specifies that Cenvat credit taken on inputs or capital goods needs to be reversed when the inputs are removed as such from the factory and contended that the respondent was required to reverse the CENVAT credit even of service tax on input services. Further, the Revenue also relied on Rule 5 of CCR which provides that CENVAT credit on inputs or input services is required to be reversed when the assessee is entitled to refund of tax paid on inputs or input services.

The respondent contended that there exists a material difference in language used in Rule 3 and Rule 5 of CCR. Rule 3 provides for reversal of credit on inputs or capital goods and Rule 5 refers to reversal of credit on inputs or input services. Further, inputs and input service are separately defined under CCR. The Revenue cannot direct respondents to reverse the credit on input service merely on analogy. The Court held that Rule 5 on which reliance was placed by the Revenue, stood on different footing. There being no specific provision for reversal of CENVAT credit on service tax paid on input service, such a proposal was not in accordance with the law. Hence, the appeal by the Department was dismissed holding that there did not exist substantial question of law and tax could not be levied merely by inference.

4. Penalty:

Can penalty u/s.76 of the Finance Act, 1994 be reduced below the minimum prescribed limit?

Commissioner of C.Ex. and Customs v. S. J. Mehta & Co., 2011 (21) STR (Guj.)

The respondents paid service tax along with interest after the due date of payment. They also filed a belated service tax return. Due to the lapses, penalty of Rs.88,800 u/s.76 of the Act was imposed. The respondents in the appeal got the penalty amount reduced to Rs.25,000 on invocation of section 80 of the Act. The Revenue’s appeal was rejected by the Tribunal.

Reliance was placed on a similar case reported at 2010 (19) STR 641 (Guj.) where the High Court quashed the order of the Tribunal. Apart from this, on a conjoint reading of section 76 and section 80 of the Act, the High Court had taken the view that there exists no discretion to the authority for levying a penalty below the minimum prescribed limit. Following this decision, the order of the Tribunal was set aside and the issue was divided to be looked at afresh by the Tribunal.

III. Tribunal :

5. Business Auxiliary Service:

Whether promotion of logo or branding service could be held as ‘Business Auxiliary Service’?

Jetlite (India) Ltd. v. Commr. of C.Ex., New Delhi 2011 (21) STR 119 (Tri.-Delhi)

In the year 2003 to 2007 (hereinafter called as the ‘relevant period’) Sahara Airlines used the logo and advertisement of its group company Sahara India Commercial Corporation Ltd. on its stationary and tickets. The Tax Department claimed that display of information of construction projects of Sahara India Commercial Corporation on boarding passes and baggage tags amounted to advertising and consequently a business auxiliary service and thus demanded a huge sum as liability to tax form Jetlite which had taken over Sahara Airlines.

The contentions of the appellant were as under:

The appellant merely displayed logo of the group companies and were a part of the said group and were not rendering any service to Sahara Corporation. No other activity was carried out by them.

The activities did not relate to any service as such rendered by Sahara Corporation to its customers and hence the appellant could not have been charged of having rendered service in the nature of business auxiliary services.

Services of ‘brand promotion’ and ‘sale of space’ have been introduced in the said Act subsequent to the relevant period and hence the appellants could not be held to have rendered such service.

Activity of the construction and sale of immovable property does not amount to service and promotion of immovable property is not covered within the definition of ‘business auxiliary service’.

Not a single document on record suggested that the appellants had promoted or marketed any service of Sahara Corporation, i.e., the appellants did not carry out advertising activity for the projects of Sahara Corporation.

The sale of immovable property by Sahara Corporation could not be deemed to be service for the relevant period as Sahara Corporation constructed building for themselves and not for others. Further, letter dated 10-9-2004 of the Ministry of Finance, clarified that the builder constructing for himself did not render any service as such.

The submissions of the Department were as under:

Resolution by Sahara Corporation revealed that they had decided to use the services of the appellants for promoting their business and in consideration of which, the appellants were to receive certain amount per passenger.

Merely because end product is transferred by way of sale, that will not wipe out the effect of services rendered by Sahara Corporation.

Subject-matter of sale being that property constructed comprised various services to make the premises ready for sale.

If the interpretation of the appellants was to be accepted, it would defeat the very provision of law.

Rejecting the demand of the Department, the Tribunal held as under:

Mere printing of logo or the promotion of a brand without reference to any particular service provided by the client was not covered under BAS (Business Auxiliary Service).

The service of brand promotion is brought in as a separate taxable service by the Finance Act, 2010 with effect from 1-7-2010 and before this date, brand promotion activity was not taxable under BAS.

Construction of immovable property on its own behalf and its sale does not constitute a service and therefore, even if such activities were promoted, it did not amount to ‘promotion or marketing of service provided by the client’. Furthermore, Memorandum or Articles of Association is not sufficient to establish that there was service for promotion or marketing provided. Similarly, relying on registration certificate, one cannot conclude about the liability to service tax. The Department has to place on record factual matrix which would disclose basic information, which would enlighten as to the activity of the firm.

The adjudication order went beyond the show-cause notice in confirming the demand by referring to various activities that Sahara Group carried on that were not alleged in the show-cause notice.

The onus to establish classification and taxability was on the department was not discharged by the Department.

Hence, the appeal was allowed holding that the appellant’s service could not be taxed as Business Auxiliary Service.

6. CENVAT credit:

a) Whether input service used for outward transportation is eligible for benefit as CENVAT credit?

Somaiya Organo Chemicals v. Commr. of C.Ex. & Cus., Aurangabad 2011 (21) STR 114 (Tri.-Mumbai)

The appellant paid service tax on the insurance policy in respect of goods transported from the factory to the port of export.

In case of export of goods, it has been held that input service includes services rendered for outward transportation upto place of removal of goods and service tax paid to facilitate goods to reach the place of removal has to be eligible for benefit of CENVAT credit. Insurance service was taken by the appellant for transportation of goods from the factory to the port of export. Thus, input service was used for the business activity undertaken up to the place of removal of goods. The Tribunal held that the appellant was entitled to take input service credit.

b) Is Cenvat credit available on air-ticket booking service for paying excise duty on manufacture of final products ?

Somaiya Organo Chemicals v. Commr. of C.Ex. & Cus., Aurangabad 2011 (21) STR 114 (Tri.-Mumbai)

The respondent was engaged in the activity of manufacture. Various air journeys were undertaken by employees for business purpose.

Revenue in appeal claimed that air-ticket booking service was not an input service as there was no nexus between air-ticket booking service and manufacturing activity. The respondent con-tended that ‘the object of CENVAT scheme is to allow credit on inputs used in or in relation to manufacture of final product and to allow credit on input services used in or in relation to manufacture of final product as well as in relation to business of manufacture’. Business activity cannot be restricted to mere manufacturing activity and it covers all activities that are related to business. The term ‘in relation to business’ cannot be given a restricted meaning and expenses incurred as a result of commercial expediency are covered by the said term. The appeal was allowed.

7. Commercial or Industrial Construction service:

Whether laying of pipeline covered as ‘Commercial or Industrial Construction service ?

Dinesh Chandra Agarwal Infracon P. Ltd. v. Commissioner of Central Excise, Ahmedabad 2011 (21) STR 41 (Tri.-Ahmd.)

The appellant provided service of laying of long-distance pipelines for the transfer of water in the State of Gujarat under a contract with the Gujarat State’s Sewerage Board, an independent body constituted under an Act of the State Government.

The Tribunal observed that service tax would be payable under the service head, ‘Commercial or Industrial Construction Service’ only if the service was provided to any person by a commercial concern and in relation to commercial or industrial construction service.

The appellant did satisfy the first condition mentioned above; however the second condition was not very certain. ‘Commercial or Industrial Construction Service’ was chargeable to service tax if it was used for the furtherance of business or commerce. As the canal built by the Government was not falling under commercial activity, service tax was held to be not chargeable.

Water purchased by the Board was distributed to rural and urban areas for the purpose of irrigation and drinking at subsidised rates and the operating cost was also not recovered by them. To set up an establishment for water supply was a part of the duties and functions of the State to provide its citizens with a better living. Accordingly, the services provided were held to be not covered as commercial or industrial construction service and therefore the appeal was allowed.

8. Penalty:

Should penalty be leviable in case service tax is paid along with interest after issuance of show-cause notice?

Rockwool Insulation v. CCE, Rajkot 2011 (21) STR 62 (Tri.-Ahmd.)

The appellant engaged in providing construction services paid service tax after the due date along with interest. However, part payment of service tax was made by the appellant after the issuance of show-cause notice (SCN). Penalty was levied on the appellant for non-payment of service tax along with interest.

Further, the appellant also collected service tax from their customers and admitted that the service tax was not paid because of financial difficulty. Thus, having regard to collection of service tax and non -payment, penalty was considered warranted and the case was remanded for re-determination of penalty imposable.

9. Principles of natural justice:

Show-cause notice issued by the revisionary authority violating the principles of natural justice.

Klockner Desma Machinery Pvt Ltd v. CST, Ahmedabad 2011 (21) STR 37 (Tri.-Ahmd.)

In the present case the demand of service tax raised against the appellant was initially dropped by the Assistant Commissioner and then taken for review by the Commissioner. Show-cause notice was issued by the Commissioner on 13-1-2010 requiring the appellant to file reply within seven days of receipt of notice and appear for personal hearing on 20th, 21st or 22nd January. The appellant applied for an extension of time to reply on 18-1-2010. There was no reference in the impugned order to said reply of the assessee. It was held that a period of seven days granted to the assessee to file a reply and personal hearing on three consecutive days in accordance with the principles of natural justice. The matter was remanded to the Adjudicating Authority for fresh decision observing principles of natural justice.

10. Rebate : Export of services:

Whether non-filing of prior declaration leads to rejection of rebate claim?

Manubhai & Co. v. CST, Ahmedabad 2011 (21) STR 65 (Tri.-Ahmd.)

The appellant claimed refund under Notification No. 12/2005-ST being service tax paid on input services used in services exported by them. The said Notification provides for filing of declaration describing the quantity, value, rate of duty, amount of tax payable on inputs, value and amount of service tax and cess payable on input services prior to the date of export. The Authority was of the opinion that the assessee could not claim refund on the ground that the appellant had not filed of non-filing declaration before export. It was further held that the notification is divided into two parts. The first part gives conditions to be fulfilled for granting of refund and the second part gives the procedures to be followed and that the requirement of a declaration in the Notification cannot be treated as a mere procedural requirement.

The appellant argued that substantive benefit can-not be denied on the ground of procedural lapses. The Tribunal held that failure to file declaration is not sufficient to hold that the assessee did not pay service tax on input services. Non-observance of a procedural condition was of a technical nature and cannot be used to deny the substantive concession.

11. Refund:

Whether refund is allowable when service tax is paid in case when the assessee fails to take benefit of small scale exemption?

Cancio E.P. Mascarenhas v. CCEx., Goa 2011 (21) STR 17 (Tri.-Mumbai)

Notification 6/2005 provided for threshold exemption of service tax on taxable services of the value not exceeding Rs.8 lakh to a service provider in the relevant year. The appellant did not know about this benefit and paid service tax on commission received from his client. On becoming aware, the appellant filed a refund claim of service tax paid by them. However, it was rejected on the ground that the appellant had not exercised the option for claiming the benefit of threshold exemption Notification. Departmental authorities submitted that the appellant paid tax by fulfilling the condition 2(1) of the said Notification which says that a service provider can opt to pay service tax and not avail the benefit of exemption, but the option once exercised shall not be withdrawn during the remaining part of the year. In this regard the assessee contended that the benefit of exemption Notification was available in any financial year subject to fulfilment of conditions specified in the Notification. The assessee could not take the decision in advance as he got registered in November 2007 and could not opt for exemption during the financial year. Hence, condition of 2(1) of the said Notification was not applicable to the appellant. Apart from this, the appellant also did not recover service tax from clients and paid service tax as an honest taxpayer. The appeal was allowed and the refund was allowed.

BCAJ Admin

Society News

Recent Important Judgements in Service Tax

Mr. V Sridharan, Advocate, and Founder Partner of Lakhsmikumaran and Sridharan addressed the members on the subject of ‘Recent Important Judgements in Service Tax’ on 19th January 2011 at the IMC. The speaker in his interactive style covered various issues with regard to the constitutionality of various provisions enacted under the service tax law. The highlight of the lecture was the support the speaker drew from various precedents under Indian and foreign cases to explain the fundamentals regarding the constitutionality of levy of service tax.

At the outset, the speaker dissected in detail the provisions relating to levy of service tax on under construction flats and analysed the niceties of the decision of the Punjab & Haryana High Court upholding the constitutional validity of the same. Thereafter, he analysed the provisions regarding the retrospective validation of the amendment regarding the renting of commercial properties. He also dealt with the complex issue of overlapping jurisdictions of taxation in case of financial leases.

Before the end of the seminar, participants also got a chance to get their queries answered from the learned speaker. His enthusiasm coupled with his deep knowledge of the subject was well appreciated by the participants.

Government’s Initiatives on Electronic Credit for Income-tax Payments

Meeting was addressed by two senior executives from NSDL, along with Ms. Delnaz Mistry, Manager NSDL on Government’s Initiatives on Electronic Credit for Income Tax payments on 31st January 2011. They touched upon subjects of TDS, Quarterly statements, issues relating to mis-mactch, and allotments of Permanent Account Number. They also dealt with procedure for obtaining PAN by non residents.

The Power Point presentation covered various practical issues dealing with TIN, E-payments, Challan Status Enquiry, key points for preparation and submission of E-TDS statements, Quarterly Statement Status, Refund Status, Registration for viewing of Form 26AS and benefits of Form 26 AS.

Speaker brought out the common errors/ inconsistencies and gave practical suggestions to overcome the same. She also informed of new initiatives planned that are likely to be introduced in near future. The participants raised their queries and pointed out difficulties faced by them was and shared their experience. The meeting was highly interactive. NSDL officials promised all the help to members to sort out their difficulties.

Nani Palkhiwala Memorial Lecture

The Eighth Nani A. Palkhivala Memorial Lecture was held on 7th February 2011 at the Tata Theatre, NCPA, Nariman Point, Mumbai 400 021 on ‘The Emerging Scenario in Education’ and was delivered by Mr. Kapil Sibal, Minister for Human Resource Development, Science & Technology & Earth Sciences, Communications & Information Technology, Govt. of India.

In the beginning the Sixth Nani A Palkhivala Civil Liberties Award was presented to Chaman Lal for the protection and preservation of civil liberties. The Award was presented by Mrs. Justice Sujata Manohar (Retd.).

Mr. Kapil Sibal presented the Vision 2020 of the Government of India in the field of education. He informed that the Government was committed to improve the education scenario in India. Enactment of the Right to Education Act was the first step in that direction. He emphasised the need for improving the ratio of school and college going children. By the end of the next decade India would need about 40,000 more colleges and about 1000 new universities. He also informed about the plan to connect colleges and universities through optical fiber which would enable students to learn online from any place and from any College/University.

He reiterated his Government commitment to reduce stress and tension associated with the present education system and assured steps to introduce comprehensive and continuous evaluation system.

He expressed hope and trust in Indian youth and promised them better tomorrow.

Standard Chartered Mumbai Marathon, 2011

Standard Chartered Mumbai Marathon, 2011, was held on 16th January, 2011. Bombay Chartered Accountants’ Society supported the cause of education by registering as an NGO for the Marathon. Over 50 members participated from the Society and ran for the cause. The enthusiasm of the members was visible as they all supported the cause in good number irrespective of their age. Members not only supported for the DREAM RUN which was for 6 Km but also the HALF MARATHON of 21 Km & FULL MARATHON of 42Km.

Accounting & Auditing Committee

February 2011 was celebrated as the Internal Audit Month at BCAS. The month started with the launch of the seventh six days Internal Audit Studies Foundation Course at Hotel Parle International from 7th February 7, 2011 to 12th February, 2011.

The course received an overwhelming response with a full house with more than 50 participants from various locations including Delhi, Chennai, Pune, Nasik, Ahmedabad, Vadodara and Rajkot.

The course commenced with the Chairman Mr Himanshu Kishnadwala, and Mr Mayur Nayak giving their opening remarks. The course was inaugurated by Smita Gune, a pioneer in the field of Internal Audit, with over 23 years of experience behind her. She spoke about the various opportunities and challenges that face the Internal Audit Profession and also shared with the participants various ways in which such challenges could be addressed. She also lucidly shared vignettes from her exciting journey.

Over the six days, participants were treated to a well-designed course which included:

Internal Audit Overview.

Positioning of Internal Audit in the Corporate framework.

Evolution of Internal Audit, with specific reference to the Indian environment, regulatory framework facilitating Internal Audit.

Preface to Standards on Internal Audit and relevant SIAs.

Internal Audit Objective – Internal Controls,

Compliances, Resource optimisation, Ethics and Governance.

Internal Audit Process – planning (audit charter, audit plan, scope determination, scope review), resource mobilisation & pre-preparation.

Internal Controls – the heart of Internal Audit, with Case studies.

Basics of Risk Management and Risk Assessment.

Situation analysis – Probing skills.

Internal Audit – How to make an impact.

Internal Audit Process – execution: field work and working papers.

Report Writing.

Internal Audit – Case Studies.

Internal Audit in IT environment – orientation (i.e., specific focus on the need to understand, appreciate and utilise the IT environment of the auditee for effective Internal Audit), practical examples in Tally, ERP, web-based system.

Internal Audit – Bag it, Sell it, Present it.

Use of CAATS (for Internal Audit evidence collection).

Building an Internal Audit Team.

Presentation skills and

Data Mining & Analytics for Internal Audit.

The faculty, drawn from both the industry and profession, included Ms. Nandita Parekh, Mr. Bhargav Vatsaraj, Mr. Himanshu Vasa, Mr. Deepjee Singhal, Mr. Jairam Rajshekhar, Mr. Nikunj Shah, Mr. Shailin Desai, Mr. Ravindra Rao, Mr. Kunal Pande, Mr. Atul Shah and Ms. Preeti Cherian.

As part of the concluding session, the participants expressed their deep sense of gratitude to the Society for having conducted such a course which will enable them to provide quality service to their clients. The course concluded with remarks by Past President Mrs Narayan Varma who also distributed certificates to all the participants.

Human Resources Committee:

The Human Resources Committee of BCAS under the auspices of Amita Memorial Trust organised a workshop for its members and students on ‘Effective Communication and Public Speaking’. This workshop was held over three days in February 2011 at the Society’s premises.

Veteran HR trainers Mr. Murli Mehta & Mr. Vivek Patki were the faculty and the workshop had 32 participants. Initially, the basic process and the fundamentals of effective communication were dealt with. Participants were educated about important tools and practical tips on how to succeed in public speaking were imparted. The workshop was specifically designed for members and students keeping in mind some of the most difficult communication issues students and members face while interacting with other people. The motivators also conducted useful exercises on confidence building when speaking in public, ability to overcome anxiety and nervousness when preparing for public and techniques to enhance personal public speaking styles were explained.

The workshop provided personal attention to each participant with constructive and effective feedback along with performance appraisal. This was an excellent opportunity to practice and assess the strengths and ability to use and control ones voice more effectively. The participants were made aware of use of non-verbal signals and physical appearance while speaking.

All the participants were happy with the workshop and the feedback received from them was very encouraging.

After two days of practice the participants were given assignment to prepare and make a five minutes speech on the concluding day. The topics were contemporary and marks were allotted for all the important aspects like opening of a speech, body language, eye contact, gestures, content, overall impact, timing and conclusion. Three judges were called to judge and give their feedback. Six useful management books were distributed to the first three winners and three consolation winners. President Mayur Nayak, Vice President Pradip Thanawala, Past Presidents Pradeep Shah and Rajesh Muni and Managing Committee member Manish Sampat were present at the inauguration and concluding of this workshop. The judges who graced the occasion were Mr. Nitin Shingala, Mr. Mukesh Trivedi & Mr. Kinjal Shah.

BCAJ Admin

From The President

Dear Valued Readers,

“Civil Disobedience” – do these words ring bell? Yes, it was
an integral part of India’s freedom struggle. A totally non-violent way of
protesting against British Rule in India!

Something similar happened in Egypt last month. People in
thousands protested nonviolently against thirty years of autocratic rule of
President Hosni Mubarak at Cairo’s Tahrir Square and other centres for weeks and
in less than one month, Mubarak stepped down yielding to the pressure of the
people for democracy. Indeed, the media played its role very successfully in a
short span of time. Youngsters, with the help of social networking media, like
Facebook, Twitter, YouTube etc., managed to spread the message like wild fire.
They were able to take the army on their side and that was a significant
achievement. The winds of freedom then spread across various other Arab
countries in the Middle East encompassing Bahrain, Tunisia, Libya, Yemen, etc.
All these countries are still being ruled by dictators/kings for decades.
Evidently, the underlying spirit in these uprisings is desire for
freedom/democracy. It is said that man is born free. Freedom is the latent
desire of every human being and is recognised as a fundamental right under the
Indian Constitution, amongst numerous others in the world.

One of champions of human freedom in modern times in India
was the legal luminary late Mr. Nani A. Palkhivala who successfully fought the
case of Kesavananda Bharti vs. State of Kerala before the Supreme Court and made
history. One of the Judges commented: “Never in the history of the Court has
there been a performance like that. With his passionate plea for human freedom
and irrefutable logic, he convinced the Court that the earlier Kesavananda
Bharti case judgment should not be reversed.” Rajaji described him as, “God’s
gift to India”. In his fond memory, the Nani A. Palkhivala Memorial Trust, gives
a “Civil Liberties Award” every year. The award was presented this year to
Padmashri Chaman Lal – a brilliant, honest and upright former IPS officer for
protection and preservation of civil liberties in various capacities. He was
instrumental in combating terrorism in the Punjab and ensuring free and fair
elections post operation Blue Star, worked with a difference as the Director
General of Police in Nagaland for which he was given the “Friend of North East”
Award by the Prime Minister, Dr. Manmohan Singh, in 2004. The moot point here is
that
we still have people in India who can and are upholding the values of freedom
and civil liberties of high order.

One of the surest ways to make humans “free” is by imparting
value based education. “Education is the key to unlock the golden door of
freedom” said George Washington Carver. Indeed, education opens up one’s mind as
one is able to read, contemplate and assimilate frozen thoughts and wisdom from
tomes. Our great leaders of freedom struggle are standing monumental examples.
In his annual address to the US Congress at Capitol Hill, President Obama noted
that India would emerge as a Super power in the decades to come, as it believes
in investing vast resources in its educational endeavour, as knowledge is power.
In order to empower the destitute and poor children of our society and bring
about a difference in their lives, the BCAS Foundation in association with
Public Concern for Governing Trust (PCGT) and the Dharma Bharathi Mission, has
decided to launch a novel project called “Teach English”. Under this mission
children from select Municipal and other schools would be taught conversational
English for three months, with one class every week for a duration of three
hours. Volunteers would be trained to teach English. The project has received
overwhelming response from members and their friends and/or families. If you
would like to contribute your services to this noble cause and to redeem your
debt to the society, you are indeed welcome to join the project. Please write to
the undersigned for any information thereon,
at president@bcasonline.org.

UNION BUDGET – 2011-12

It is heartening to note that in the Union Budget 2011-12,
the Government have laid emphasis on the need for universal access to secondary
education as well as increasing the percentage of students acquiring higher
education and skilled training. The allocation for this purpose is Rs. 52,057
crores, which is 24% higher than the current year – a great welcome move indeed.
The implementation of the “Sarva Shiksha Abhiyan”, the Centrally Sponsored
Scheme “Vocationalisation of Secondary Education” to improve the employability
of our youth and pre-matric scholarship scheme for Scheduled Castes and
Scheduled Tribes, are some of the other highly commendable initiatives taken in
the field of education. But what is going to change the scenario is the linking
of 1500 Institutes of Higher Learning and Research in the Country through an
optical fibre backbone to be in place by 31st March 2012 under the National
Knowledge Network (NKN). This would facilitate geographical spread of education
and knowledge seamlessly. It would create the National Knowledge Sharing
Platform and if implemented rightly, may well become a powerful knowledge bank
of unusual dimensions.

Whereas food inflation at 20% and fiscal deficit at 5.1% of
GDP are matters of grave concern, the Economic Survey unveils some reassuring
statistics. The growth of Indian economy at 8.6 % proves that Indian Economy is
on the growth track. The Union Budget 2011-12, envisages several legislations
and numerous reforms are expected in the Financial Sector. The scope of Service
Tax and Excise has been widened. The growing awareness about the environment and
the launch of a ten-year “Green India Mission” is a welcome move. As expected,
not many changes are made in the area of Direct Taxes, in view of the Direct
Taxes Code on the anvil. Concrete measures have been proposed in the Finance
Bill to unearth black money of Indians abroad through introduction of provisions
compelling assesses to provide details of transactions with persons located in
any country or jurisdiction which does not effectively exchange information with
India.

Cricket fever is on along with examination fever. I can
imagine how difficult it is for students to balance between the two. I wonder
how Government could allow playing cricket during examination season, since
cricket has now become more of an entertainment than a sport, which it ought
tobe!

All the same, I wish all students best of luck in their
endeavour.

Regards,

Mayur Nayak

levitra

BCAJ Admin

From The President

Dear BCAJ Lovers,

Every month, I ponder over what to write about in the
President’s Page. I am conscious of the fact that my illustrious predecessors
have been writing on academic matters and on technical subjects of interest to
members. On the other hand, I have deliberately stayed away from such topics.
The reason for this is that I believe I have got an excellent opportunity to
share my thoughts on other important topics with thousands of professionals in
and outside the country and by writing on topics or issues other than tax,
accounting, auditing etc., I am bringing to the fore issues of importance on
which very little discussion otherwise takes place amongst our profession. The
response that I have so far received from a large number of members has
encouraged me to continue this trend. I sincerely thank all the readers who have
been writing to me and sharing their views.

This month, I happened to attend a very impressive event in
Mumbai. The Business India Award function for the Businessman of the Year 2009
was held on 22nd February. Mr. Aditya Puri, the Managing Director of HDFC Bank,
was the recipient of this prestigious award this time. I learnt a few very
interesting facts about this man, who heads one of the most successful banks of
our country. He does not wear a watch, he does not carry a mobile phone, and
lastly, he leaves office every evening by 5.30. This is an amazing revelation
for all of us. If a poll is taken, I doubt if any CA would be leaving his office
by 5.30 every evening. Whether we are in practice or in industry, we are all
bogged down by our work and consider it mandatory to sit late hours at work. And
here is a man who heads the second largest private sector bank in India and this
gentleman can manage to go home at decent hours every day. Can there be a better
example of time management and also of delegation? Can there be a better person
to emulate than Mr. Puri? The BCAS has been conducting a course on self
development, which includes a session on time management. I invite our readers
to take these matters more seriously.

Another event that I attended was a fund raiser by the Terry
Fox Foundation. This organization, aided by many others in India and across the
world, has raised millions of dollars of funds for cancer research. Terry Fox,
as many of you would know, was a keen sportsman who, at the age of 18, was
diagnosed with bone cancer and had to have one of his legs amputated. Despite
this, he decided to run across Canada to raise funds for other cancer patients.
He ran more than 5,300 kms before he was forced to stop running due to further
spread of cancer in his body. He died at the age of 22. This spirit of being
alive while dying teaches all of us to give more than take. Even in his death,
Terry left a ray of hope for so many other cancer patients like him. He proved
that nothing is impossible if there is a will to achieve the seemingly
impossible. The BCAS Foundation, which is a charitable trust floated by the BCAS
and its leaders, has been conceived to do noble work. This year, we propose to
raise funds for providing educational loans/scholarships to financially weak CA
students. This proposal is still under finalization. I urge readers to loosen
their purse strings and to contribute generously to this cause. Let us spread
education far and wide and particularly amongst the financially weak. Recently,
we have funded the CA course fees for a young and enthusiastic son of a
vegetable vendor. There will be many such deserving cases. Do you have it in you
to come out and do something concrete for such people?

A member of BCAS happened to forward me an interesting
e-mail. It contained an excerpt from an article written by a professor of IIM
Bangalore. It spoke of how the fundamentals of business environment are changing
completely. There are several examples of how completely unheard of business
ideas/products have, virtually overnight, become competitors of well known and
well entrenched products. Such new ideas/products have displaced ideas/products
which were once considered irreplaceable. Thus, for example, it is reported that
the company that sells the largest number of cameras in India is not Sony or
Canon or Kodak but Nokia (through its mobile phones). Similarly, the biggest
name in the music industry today is not HMV or Sa-Re-Ga-Ma but Airtel, which
sells caller tunes that play for 30 seconds. An even more vivid example is the
one about who was the toughest competitor to British Airways in India in 2008?
Singapore airlines? Better still, Indian Airlines? Maybe, but there are better
answers. There are competitors that can hurt all these airlines and others not
mentioned. The answer is videoconferencing and telepresence services of HP and
Cisco. Travel dropped due to recession and people started communicating over
internet and other electronic media – thereby avoiding travel altogether. All
these examples, the author said, lead one to a gem of a question – “who is my
competitor?” Chartered Accountants also need to pay heed to this question. Who
could be a competitor to a CA? Is it an MBA? Is it a CFA? Or is it someone else?
Who knows, the answer could be something as out of the box as “the Internet”.
After all, don’t we have so many web sites offering tax return filing services
at rates which we CAs would not even pay our office boys? So, is it possible
that the internet will replace a CA one day? Possible. At least for compliance
related services. The point that I am trying to drive home is that nobody can
afford to remain complacent and bask in past glory. One can never anticipate the
direction from where competition can come and of what type it would be. At such
times, one needs to have a broad vision. I am reminded of a very illuminating
statement attributed to Swami Vivekananda, who was asked by a blind person, “Can
there be anything worse than losing our sight?” The Swami promptly replied,
“Yes, losing your Vision.” If any of you are interested in reading the mail
referred to above, do write to me and I will forward it to you.

The Budget has been presented to the country by the Finance
Minister and all of you would have already had an overdose of material written
on and about the budgetary provisions. I, therefore, do not intend to add
anything to what the Editor of BCAJ has written.

Encouraged (nay, virtually prodded) by some of the young and
enthusiastic members of the BCAS, I have plunged headlong into social and
professional networking web sites. We now have a presence on some of the popular
networking sites such as Twitter, Linkedin and Facebook. I have also started a
blog on wordpress. I invite readers to join us in the cyber world. I find it
much easier to keep in touch with my contacts there than personally. Also, I
have heard that soon e-mails may go out of fashion! That being the case, I am
preparing myself for the changed environment well in advance! Join me if you
desire.

Sincerely yours,

Ameet Patel

levitra

BCAJ Admin

From The President

Dear Professional Colleagues,

India has hit the headlines once again. Slumdog Millionaire
has won 8 Oscars including the one for The Best Film, and A. R. Rahman, the
heartthrob of millions for his composition and background score. One really
feels proud to be an Indian.

There have been some comments that the film is really a
British film and only the performers are Indians. I believe that the Awards are
for the excellence in performance and there is no doubt that many of the
performers are Indians. Any film is a team effort and India therefore deserves
the credit and the accolades. I felt really happy for those six children who are
a part of this film. One only hopes that this glory, which the film and its
artists have achieved, results in improvement in the quality of life of all
those kids whose story the film depicts. While today’s newspapers are expectedly
filled with coverage of the Oscar Awards, a story in a reputed daily which was
carried alongside these reports caught the eye. The report stated that even
though public expenditure on health had increased, the percentage of
undernourished children both in the rural and urban areas had gone up — a clear
indication of the fact that the expenditure is not achieving expected results.

Without detracting from the fabulous achievement of the
entire team of Slumdog Millionaire, I feel that the reaction from the government
could have been different. As I write this communication, three States have
already declared this film tax free. One really needs to examine whether these
exemptions achieve the intended results. If the desire is to ensure that more
people watch the film, it would be better to collect the tax and earmark it for
providing facilities to those who cannot afford the luxuries of visiting a movie
theatre today. Passing on the benefit of a tax exemption to the urban elite who
visit the multiplexes, really makes no sense.

The reaction of the public fortifies one feeling that we are
a nation that enjoys celebrations and loves celebrities. We do not tolerate
losers. The moment our cricket team wins a tournament, the cricketers are
worshipped, the minute they lose they are trashed, cursed, their homes attacked.
To the media everything is an event to be milked to the maximum.

The world believes that India is a country with immense
talent. Occasions such as the Oscars for the Slumdog team prove this confidence
is not misplaced. The challenge is to ensure that the achievements, successes,
victories, do not remain merely events, but encourage actual action on the
ground. An A. R. Rahman, Resul Pookutty, Bindra, Sachin, Sania will definitely
inspire the talented youth of this country. It is our duty, and responsibility
of the powers that be, to provide them with the opportunity.

A week before the mega Oscar event, Pranab Mukherjee, the
Finance Minister, presented the interim budget, the last one of this government.
Considering the prevailing economic situation, many were expecting the Finance
Minister to provide substantial tax cuts and other incentives. It would have
been politically expedient, but Mr. Mukherjee refrained from going overboard. He
has provided some marginal tax cuts in excise and service tax, but they were
necessary, and cannot be treated as an election bonanza. He has left the task of
providing a more comprehensive economic stimulus to the next government. By the
time this communication reaches you, election dates may have been announced, and
the nation will prepare itself for another mega event.

In the coming elections let us all vote, and encourage our
friends and relatives to vote. Undoubtedly, our choice may be limited, but we
must exercise our franchise and send the best from the available to parliament
as our representatives. One of the duties of the government is to legislate, but
our politicians have no time for this. At the end of this Lok Sabha, 39 bills
which had been introduced will lapse, while 29 others which had been introduced
in the Rajya Sabha will await action by the next government. Compare this with
the seven bills lapsed at the culmination of the first Lok Sabha. I am putting
down all these thoughts not with a view to criticise but when I witnessed the
Oscar ceremony, I felt that our country has tremendous latent talent. All we
need is better governance.

The entire world is on the threshold of an economic slowdown
or possibly a recession. All economists feel that India is one of the few
countries which will register positive economic growth, while all other major
economies will decline. The world believes that India will be the first off the
block, when the turnaround takes place. We must start believing in ourselves. We
must not let this opportunity pass. We have the potential; if we utilise it, we
will be well placed to lead when the world order changes in the coming decades.
Jai Ho India !

Anil Sathe

levitra

BCAJ Admin

ICAI And Its Members

ICAI and its Members

1. Accounting treatment of advance to subsidiary pending
finalisation of modalities of issue of the shares :

A public limited company (P.C. Ltd.) which is a wholly-owned
subsidiary of a listed government company, is in the business of exploration and
production of oil and gas and other hydrocarbon-related activities outside
India. P.C. Ltd. has acquired 100% share capital of a Cyprus-based company
(ABC). During the same year, ABC acquired the entire issued share capital of a
UK-based company (XYZ). The funds for the acquisition of XYZ amounting to USD
1,922 million were provided by P.C. Ltd. to ABC with the intention to treat it
as share application money without entering into any formal agreement at the
time of remittances. Further, P.C. Ltd. has advanced USD 53 million to ABC for
XYZ’s business requirements.

Subsequently, P.C. Ltd. entered into a ‘Shareholders’
Investment Agreement’ with ABC. As per the terms of shareholders’ Investment
Agreement, ABC will issue preference/equity shares at a mutuality agreed premium
rate. The agreement makes clear the intention to convert the advance of USD
1,922 million given for acquisition of XYZ into preference/equity shares.
However, no concrete modalities regarding vital issues of the shares like,
nature of shares (i.e., equity/preference shares), number of shares, face
value and premium, etc., are firmed up till the balance-sheet date. No written
agreement is in place regarding the settlement of advance of USD 53 million
given for meeting XYZ’s business requirements. However, P.C. Ltd. intends to
convert this advance also into equity/preference shares and the advance is not
likely to be refunded in near future. As the shares are yet to be issued, the
amount of USD 1,975 paid by P.C. Ltd. to ABC has been shown as ‘Advance to ABC’
in Schedule, ‘Loans and Advances’ in the stand-alone financial statements.

As P.C. Ltd. intends to convert the advance of USD 1,975
(1,922 + 53) into equity/preference shares, the advance given to ABC, has been
considered as an extension to the net investment of P.C. Ltd. in ABC, which is a
non-integral foreign operation. Therefore, the net investment in ABC has been
revalued and accounted for in accordance with the requirements of Paragraph 15
and 16 of Accounting Standard (AS) 11. P.C. Ltd. has revalued the advance of USD
1,975 million at the foreign exchange rate at the year-end rate. The credit for
the same amount has been given to ‘Foreign Exchange Translation Reserve’.

However, the C&AG while carrying out their review
u/s.619(3)(b) objected to the above accounting treatment of showing the amount
of USD 1,922 million paid to ABC towards financing acquisition cost of XYZ as
‘Advance’, as in their view, the amount should be shown as ‘Investment (Share
Application Money pending allotment)’ and, therefore should not be revalued in
accordance with Accounting Standard (AS) 13. Further, the C&AG questioned the
credit of the amount arising on revaluation of USD 53 million to ‘Foreign
Exchange Translation Reserve’ instead of taking it to the profit and loss
account, as in their view, the foreign exchange revaluation gain is of revenue
nature.

Query :

In view of the above stated facts, P.C. Ltd. sought the
opinion of the Expert Advisory Committee (EAC) on the appropriate accounting
treatment of advances so paid and treatment of foreign exchange gain/loss
arising on revaluation thereof.

EAC opinion :

EAC has taken the view that accounting treatment in the case
of P.C. Ltd. would depend upon whether the funds advanced to ABC for acquisition
of shares in XYZ and for meeting XYZ’s business requirements can be regarded as
a monetary item or as a non-monetary item. The Committee noted the Accounting
Standard (AS) 11 and came to the conclusion that shareholder’s investment
agreement with ABC only contains the intention to convert the said advance into
preference/equity shares, and no concrete modalities regarding nature of shares
(i.e., equity/preference shares), number of shares, face value, premium,
etc., have been decided till the balance-sheet date. The EAC noted that in
respect of an advance of USD 53 million P.C. Ltd. intends to convert this
advance also into equity/preference shares. However, no agreement in respect
thereof has been entered into or any modality for such conversion has been
decided till the balance-sheet date. Accordingly, the EAC is of the view that
both the advances are of the nature of monetary items. Further, the EAC is also
of the view that accounting treatment followed by the company for the treatment
of the advance of USD 1,975, revaluation of advances and credit of foreign
exchange revaluation gain to Foreign Exchange Translation Reserve is
appropriate.

(Refer pages 1248 to 1252 of C.A. Journal of February, 2011)

2. Our new President and Vice-President :

Shri G. Ramaswamy from Coimbatore has been elected as
President of ICAI on 12th February. Shri Jaydeep Shah from Nagpur has been
elected as Vice-President of ICAI on 12th February. Our greetings and best
wishes to both of them. We wish them a successful term of office in 2011-12.

3. New Chairman of NACAS :

Shri M. M. Chitale, Mumbai, former President of ICAI, has
been appointed as Chairman of National Advisory Committee on Accounting
Standards in place of Shri Y. H. Malegam w.e.f. 31-1-2011 for one year. This
committee is also reconstituted. We wish to convey our greetings and best wishes
to Shri Chitale and wish him and his colleagues a successful term of office in
2011-12.

4. New Minister for Corporate Affairs :

Shri Murli Deora from Mumbai has taken charge as the new
Minister of Corporate Affairs on 20-1-2011. He is known to be a seasonal
industrialist, a proactive social worker and a soft but determined leader. His
Ministry oversees the affairs of ICAI. Our greetings and best wishes to Shri
Deora. We wish him a successful term of office. (Page 1181)

5. MoU with Canada C.A. Institute :

ICAI has signed a MoU with Canadian Institute of Chartered
Accountants for reciprocal membership arrangements. This MoU will facilitate
mobility of members across the borders and further strengthen the ties between
India and Canada. The MoU will establish closer working linkages as well as
provide recognition for members of the two institutes in the respective
countries. (Press Note of ICAI dated 7-2-2011)

6. ICAI News :

(Note : Page Nos. given below are from C.A. Journal of
February, 2011)

(i) Recognition for PhD Courses for CAs :

Institute of Management, Kozhikode (Kerala) and National Law
School of India, Bangalore, have extended a facility to our members to pursue
Fellow Programme i.e., PhD programme. (Page 1149)

(ii) Arrangement with Microsoft :

Special pricing (at very low rates) has been worked out with Microsoft for ICAI members and students. This is a part of the Academic Licensing for providing the latest edition of MS Windows and MS Office. (Page 1149)

iii) Significant achievements and major decisions by Council of ICAI in 2010:
b) Details of some significant achievements by ICAI since February, 2010, are given on pages 1152 to 1168.

a) Details of major Council decisions since February, 2010, are given on pages 1170 to 1180.

iv) ICAI International Conference

International Conference on Role of Accountancy Profession in Sustained Economic Growth was organised by ICAI from 4th to 6th January, 2011, New Delhi. Highlights of the conference proceedings are given on pages 1186 to 1196.

v) Tax issues from conveyance of IFRS with accounting standards:

ICAI has drafted 35 accounting standards after the convergence of IFRS and sent it to the Government for Notification under the Companies Act. (Refer Page 1152). A study group comprising some Council Members and representatives of CBDT was constituted for study of tax issues arising out of convergence of existing accounting standards with IFRC. This Group has prepared a position paper identifying these tax issues and making certain suggestions for amendments in the Income-tax Act and the Companies Act. This position paper is published on pages 1254 to 1263.

(vi) New books released by ICAI:
(a) Technical Guide on Audit of NBFCs.
(b) Practical Approach to General Insurance Management.
(c) Social Audit of Public Money.
(d) Excellence in Financial Reporting Illustrative Guide to Presentation and Disclosures.
(e) Drafting, Conveyancing, Registration and Stamping of Commercial and other Documents.
(f) Changing Times in Government Accounting — A Status Report.
(g) Study on Co-ordination of Internal Auditor with Functional Heads.

(vii) New branches and buildings of ICAI:
The following new branches and buildings at branches have been opened by ICAI:
(a) Latur branch of WIRC.
(b) Ganganagar branch of CIRC.
(c) New building at Bhilai branch of CIRC.
(d) New building at Sangrur branch of NIRC.
(Refer Page 1149)

BCAJ Admin

ICAI And Its Members

ICAI and Its Members

1. Disciplinary Case

In the case of ICAI vs Shri Lokesh Dhawan (reported on page
1230 of C.A. Journal, February, 2010 issue), the member was a partner of a firm
of Chartered Accountants which was appointed as a statutory auditor of a public
sector bank. In the complaint filed by this bank, it was alleged that: (i) the
member had demanded and collected from the bank large sums of money as advance
for T.A. and other expenses. He had claimed expenses beyond the entitlement as
per the RBI guidelines, and did not refund the excess amount to the bank; (ii)
He had canvassed for procuring a computer business for his sister concern from
the bank by using his position as a statutory auditor; and (iii) He had hired
the services of a C.A. who was not his partner or employee, to conduct audit of
the bank.

The disciplinary body, after examining the evidence produced
by the parties, held that the member was guilty of “other misconduct”. The
council accepted this finding and referred the matter to the High Court to award
punishment to the member by removing his name from the Register of Members for
three months.

The Delhi High Court has held that there is no definition of
the expression “other misconduct” in the C.A. Act. Therefore, the High Court
held that the interpretation of this expression should be left to the council of
ICAI. The council is the disciplinary body comprised of peers who have several
years of experience. Further, the High Court held that in this case, the member
was unable to demonstrate that the above decision of the council and its
recommendation for punishment was either procedurally flawed or that on merits
it was perverse or mala fide. Therefore, the High Court accepted the finding of
the council and ordered that the name of the member be removed from the Register
of Members for a period of three months.

2. Some Ethical Issues

The Ethical Standards Committee of ICAI has clarified some
issues for the benefit of its members on page 1216 of C.A. Journal, February
2010 issue. Some of the issues are listed
below.

(i) If a member is a partner in more than one firm, is it
permissible to print the names of all the firms on visiting cards,
letterheads, stationery, etc.?

A. There is no prohibition under Clause (7) of Part I of
the First Schedule to the C.A. Act.

(ii) Is a Chartered Accountant / Firm permitted to use logo
on letterheads, stationery, etc.?

A. The use of logo/monogram of any kind/form/style/design/colour
whatsoever on any display material or media, e.g., paper stationery,
documents, visiting cards, magnetic devices, internet or signboard by a
Chartered Accountant or a firm of Chartered Accountants is prohibited.
Use/printing of member/firm name in any other manner tantamount to a
logo/monogram is also prohibited. However, a common CA logo has been allowed
to members, provided it is used in the correct manner within the terms of the
council’s guidelines.

(iii) Is the office of a Chartered Accountant permitted to
go in for ISO 9001: 2000 certification or other similar certifications?

A. There is no bar for a member to go in for ISO 9001 :
2000 certification or other similar certifications. However, the member cannot
use the expression like “ISO Certified” on his professional documents,
visiting cards, letterheads or sign boards, etc.

(iv) If a member has passed any additional course of the
ICAI, is he permitted to print such qualification on visiting cards,
letterheads and other stationery ?

A. Under Clause (7) of Part I of the First Schedule to the
CA Act, a member is permitted to print such qualification on his visiting
cards, letterheads and other stationery. However, he cannot use the
designation “Information System Auditor’ or the like.

(v) Can a Chartered Accountant in practice accept audit in
case the audit fee of the previous auditor remains unpaid?

A. In case the undisputed audit fees for carrying out the
statutory audit under the Companies Act, 1956 or various other statutes have
not been paid, the incoming auditor should not accept the appointment unless
such fees are paid. In respect of other dues, the incoming auditor should, in
appropriate circumstances use his good office in favour of his predecessor to
have the dispute as regard the fees settled.

The council has taken the view that the provision of audit
fee made in the accounts signed by both the auditor and the auditee shall be
considered as ‘undisputed’ audit fees. In this connection, attention of members
is invited to the Council General Guidelines, 2008, dated 08.08.2008 (also
published on page 686 of the October 2008 issue of C.A . Journal). Under this
notification, a member in practice shall be deemed guilty of professional
misconduct if he accepts the appointment as an auditor of an entity in case the
undisputed audit fee of another Chartered Accountant for carrying out statutory
audit, under the Companies Act, 1956 or various other statutes, has not been
paid.

3. Accounting for foreign
exchange variation prior to commencement of commercial operation

Facts

A company is in the process of setting up a refin-ery in the state of Madhya Pradesh. It is procuring items relating to its plant and machinery for the construction of the refinery from foreign vendors. The transaction is recorded at the rate prevailing on the transaction date. The difference in foreign exchange variation between the transaction date and the settlement date is booked under ‘pre-operative expenditure pending capitalization’, on the ground that the company is yet to commence its commercial operations. No profit and loss account has been prepared by the company and only the necessary details, as per Part II of Schedule VI to the Companies Act, 1956 have been disclosed as ‘pre-operative expenditure pending capitalization’.

Based on the above facts, the company had sought the opinion of the Expert Advisory Committee regarding accounting for foreign exchange differences arising on settlement of liability for procurement of items of plant and machinery from abroad, prior to commencement of operation.

EAC Opinion

The committee noted that Standard AS-11 was notified by the central government under the Companies (Accounting Standards) Rules, 2006 which came into effect in respect of accounting periods commencing on or after December 07, 2006. The notified AS-11 contains a footnote that ‘the accounting treatment of exchange differences contained in this Stan-dard is required to be followed irrespective of the relevant provisions of Schedule VI to the Companies Act,1956’.

On the basis of the above, the committee opined that in respect of transactions in foreign currencies entered into on or after April 01, 2004, but before March 31, 2007, the exchange difference arising on settlement of monetary liability (letter of credit) incurred for procurement of items of plant and ma-chinery from abroad should be adjusted to the cost of the related fixed assets. However, in accordance with AS-11 (revised 2003), the foreign exchange dif-ferences arising on or after April 01,2007 should be charged/credited to the profit and loss account of the period in which the same arise. While applying the above accounting treatment, the requirements of Para 4 (e) (read with its explanation) of AS – 16 “Borrowing Costs” should also be taken into con-sideration. Therefore, the committee is of the view that for this purpose, a profit and loss statement will have to be prepared by the company even during the construction phase. Hence, the foreign exchange differences should not be treated as indi-rect expenses relating to the project and, therefore, not be accumulated as pre-operative expenditure pending capitalization for allocation over the assets of the refinery. [Refer pages 1246 to 1247 of C.A. Journal, February, 2010 issue]

4. Implementation of IFRS in India

The Ministry of Corporate Affairs has issued a press note dated 22.1.2010 in which the roadmap for implementation of IFRS in India has been given as follows:

i) There will be two separate sets of Accounting Standards u/s 211 (3C) of the Companies Act.
The first set would comprise of Indian Ac-counting Standards which are converged with the IFRS’s and which shall be applicable to the specified class of companies. The second set of Accounting Standards will comprise of the existing Indian Accounting Standards and will be applicable to other companies, includ-ing small and medium companies.

ii) The first set of Accounting Standards (i.e., converged accounting standards) will be applied to specified classes of companies in phases as below:

Phase – I : The following categories of companies will convert their opening balance sheets as on the first day of the financial year, commencing on or after 1st April, 2011, in compliance with the notified accounting stan-dards which are converged with IFRS. These companies are: (i) Companies which are part of NSE – Nifty 50; (ii) Companies which are part of BSE – Sensex 30; (iii) Companies whose shares or other securities are listed on stock exchanges outside India; and (iv) Companies, whether listed or not, which have a net worth in excess of Rs.1,000 crores.

Phase – II : Companies, whether listed or not, having a net worth exceeding Rs. 500 crores but not exceeding Rs. 1,000 crores, will convert their opening balance sheet on the first day of the financial year commencing on or after 1st April, 2013, in compliance with the notified accounting standards which are converged with IFRS.

Phase – III : Listed companies which have a net worth of Rs.500 crores or less will convert their opening balance sheet as on the first day of the financial year commencing on or after 1st April, 2014, in compliance with the notified accounting standards which are converged with IFRS.

Companies which fall in the following categories will not be required to follow the notified
accounting standards which are converged with the IFRS (though they may voluntarily opt to do so), but need to follow only the notified accounting standards which are not converged with the IFRS. These companies are:

a) Non-listed companies which have a net worth of Rs. 500 crores or less and whose shares or other securities are not listed on Stock Ex-changes outside India.

b) Small and Medium Companies (SMCs).

iv) Separate roadmaps for banks and insurance companies will be announced at a later date. Necessary amendments in the Companies Act as well as Schedule VI of the Companies Act will be introduced during the next budget session of the Parliament.

5. Accounting and Auditing Standards

The following accounting and auditing standards have been issued by ICAI. The texts of these standards have been published in the February, 2010 issue of the C.A. Journal, on the pages mentioned below. It may be noted that the ‘Standards on Auditing’ will come into force for audit of financial statements for periods beginning on or after 1.4.2011. Other accounting and internal audit standards are recommendatory at present.

(i) Standard on Auditing (SA) 700 (Revised)
– Forming an Opinion and Reporting on Financial Statements (P. 1327 – 1338).

ii) Standard on Auditing (SA) 705 – Modifications to the Opinion in the Independent Auditor’s Report. (P. 1339 – 1348).

iii) Standard on Auditing (SA) 706 (Revised) – Emphasis of Matter Paragraphs and other Matter Paragraphs in the Independent Audi-tor’s Report (P.1349 – 1352).

iv) Standard on Internal Audit (SIA) 17 – Consideration of Laws and Regulations in an Internal Audit (P.1353 – 1357).

v)   Accounting Standard for Local Bodies (ASLB) 5 – Property, Plant and Equipment (P.1358 – 1367).
(vi)   Accounting Standard for Local Bodies (ASLB) 6 – Events after the Reporting Date (P.1368– 1371).

   6. ICAI News

(Note: Page Nos. given below are from the C.A. Journal, February, 2010 issue)

iii) CA Final Results

Results of the CA Final Examination, held in No-vember, 2009, were declared in January, 2010. It has been reported that the performance of students in the final examination has been very poor as compared to last four examinations. ICAI will have to study the reasons for this fall in the performance of students and take remedial steps to improve the position. The figures, as reported, are as hereunder:

i) CA T.N. Manoharan awarded PADMA SHRI
CA T.N. Manoharan, President of ICAI, 2006– 07, has been awarded the title of ‘PADMA SHRI’ by the President of India. It is a great honour and recognition for our profession. Shri Manoharan is from the BCAS family and a regular faculty member in most of BCAS’s programmes. Our greetings and best wishes to him on his achievement!

ii) Branches of ICAI

a) A new branch has been opened on 16.12.2009 at Gandhidham (WIRC). Further, branches will be opened at Ratlam, Pali, Ganganagar, Bhavnagar and Tirupati (Refer P. 1205 and 1310).

b) New branch buildings (ICAI Bhavans) in-augurated at Vapi on 1.12.2009, Baroda on 13.12.2009, Ranchi on 15.12.2009, Guwahati on 18.12.2009, Vijaywada on 25.1.2010, Belgaum on 26.1.2010, Hubli on 26.1.2010, Pune on 26.1.2010, and Nashik on 27.1.2010. (Refer P. 1210).

iv) Signature on Audit Reports

ICAI has decided that members should include the Registration No. of the firm, as allotted by ICAI in the audit reports and signed by them, in addition to other requirements relating to the signature on the audit report as prescribed under the relevant standard on auditing. Further, the auditor should ensure that the resolution passed by the company for appointment of the statutory auditor u/s 224 of the Companies Act, contains the Registration No. of the C.A. Firm. These requirements will come into effect from 1.4.2010 (P. 1312).

v) Submission of Form112 by students for taking other courses

As a measure of amnesty, ICAI has decided that students who have not filed Form No.112 so far, can file the same on or before 31.3.2010. No request for condonation of delay in submitting Form No. 112 will be considered after 1.4.2010. (P. 1312)

vi) Results of Elections to Central and Regional Councils

Details of members elected to the Central and Regional Councils for three years from February 2010 – 2013 have been published on P. 1314 – 1316.

vii) New Office Bearers of WIRC

The following members have been elected as of-fice bearers of WIRC for one year from February 2010.

(a) Shri Sanjeev Lalan, Mumbai – Chairman

(b) Shri Makrand Joshi, Nagpur – Vice Chairman

c) Shri Mangesh Kinare, Mumbai – Secretary

d) Shri Parag Rawal, Ahmedabad – Treasurer

Our greetings and best wishes to them for a successful term of office!

viii) Our New President and Vice President

At the election held on 12.2.2010, the council has elected:

Shri Amarjeet Chopra, New Delhi as our New President; and
Shri G. Ramaswamy as our New Vice President

We convey our greetings and best wishes for their successful terms in office. We hope they will be able to provide better leadership to our profession during the year.

BCAJ Admin

ICAI And Its Members

ICAI and Its Members

1. Disciplinary case :

In the case of ICAI v. Shri Raj Kumar N. Iyer, the
member had given tax audit report u/s.44AB of the Income-tax Act to his client.
The said audit report was not accompanied by the Balance Sheet, and Profit &
Loss Account as annexure to Form 3CD. During the course of
a survey u/s.133A, a few days after the said report was filed with the AO, it
was found that the assessee had no books of accounts. When the statement of the
member was recorded by the AO, he admitted that the assessee did not maintain
proper books of account as mentioned in the tax audit report. The member also
stated that no books of accounts were generated through the computer and,
therefore, he stated that (i) it was not possible to furnish Trading and Profit
& Loss Account and Balance Sheet, (ii) the opinion given in Form 3CB that the
accounts give true and fair view of the financial statements was not correct,
and (iii) the audit report should be treated as incorrect.

On these facts, the Assessing Officer complained to the
Institute that the member had given a false audit certificate in Form 3CB and
3CD and, therefore, he was guilty of professional and/or other misconduct.

In the disciplinary proceedings, the member pleaded guilty
under Regulation 15(2) of the C.A. Regulations. Therefore, he was held to be
guilty of professional misconduct under Clause (8) of Part I of the Second
Schedule. The Council referred the matter to Bombay High Court with a
recommendation to reprimand the member.

At the time of hearing, the member did not attend before the
High Court. However, the High Court has taken the view that since the member has
admitted the guilt, he deserves a lenient punishment. On this basis the High
Court accepted the recommendation of the Council and ordered that the member be
reprimanded. (C.A. Journal for February, 2009 — Page 1377).

2. New office bearers of the Council :

The Council of ICAI has elected new office bearers for
2009-10 on 5-2-2009. 4 Standing Committees and 36 Non-standing Committees are
also elected as under :

(i) Shri Uttam Prakash Agarwal from Mumbai is elected as
President. Our greetings and best wishes to him for a successful term of
office.

(ii) Shri Amarjit Chopra from New Delhi is elected as
Vice-President. Our greetings and best wishes to him for a successful term of
office.

(iii) Executive Committee — President, Vice-President, C.A.
V. C. James, Abhijit Bundopadhyay, K. P. Khandelwal and V. K. Garg.

(iv) Examination Committee — President, Vice-President,
C.A. R. S. Adukia, Preeti P. Mahatme, J. Venkateswarlu, Manoj Fadnis and Shri
K. R. Maheshwari.

(v) Disciplinary Committee (Old Cases) — President,
Vice-President, C.A. G. Ramaswamy, K. K. Gupta and Shri O. P. Vaish.

(vi) Disciplinary Committee (New Cases) — President, C.A.
S. Santhanakrishnan, Anuj Goyal, Shri R. K. Handoo and Shri M. P. Lohia.

(vii) Board of Discipline (New Cases) — President, C.A. K.
P. Khandelwal and Shri S. K. Nayak.

(viii) Chairmen of some of the Other Committees :

3. The Companies Bill, 2008 :

The Companies Bill, 2008 has been introduced in the Lok Sabha
on 23-10-2008 to replace the existing Companies Act, 1956. There is no proposal
about rotation of statutory auditors in the Bill. However, some of the
provisions are proposed to ensure that the independence of statutory auditors is
not impaired. In brief, these provisions are as under :

Special Resolution will be required if an auditor, other than the retiring auditor, is proposed to be appointed.

An auditor who has direct financial interest in the company or who receives any loans or guarantee from the company or who has any business relationship (other than as an auditor) with the company cannot be appointed as auditor.

A person whose relative is in employment of the company as a director or key managerial personnel cannot be appointed as auditor.

If a firm is appointed as auditors, only a partner of the firm, as authorised by the firm, can sign the audit report on behalf of the firm.

An auditor cannot accept any other assignment from the company like accounting, book keeping, internal audit, design and implementation of any financial information system, actuarial services, investment advisory services, investment banking services, financial services and management services.

Audit report shall state whether the financial statements comply with the accounting standards and auditing standards. It may be noted that the National Advisory Committee appointed by the Government will now be required to advise the Government about accounting standards as well as auditing standards. In other words, the auditors will have to comply with auditing standards laid down by the Government on the advice of the National Advisory Committee.

Auditor shall have a right to attend every annual general meeting and shall have a right to be heard at such meeting on any part of the business conducted at the meeting.

If the auditor makes default in complying with the provisions relating to reporting on the financial statements, provisions prohibiting rendering of other services, and allowing any person other than an authorised person to sign audit report, he shall be liable to pay fine of Rs.25,000, which may extend to Rs.5 lacs. If it is found that the auditor has knowingly or willfully contravened any of the above provisions, he shall be punishable with imprisonment for a term up to one year or with fine of Rs.1 lac, which may extend to Rs.25 lacs or with both. It is also provided that in such cases, the auditor will have to refund the fees and also pay for damages to the company or to any other persons for loss arising out of incorrect or misleading statements of particulars made in the audit report.

From the above provisions proposed in the Companies Bill, 2008, it will be noticed that these provisions are more stringent and are being introduced with a view to achieve the goal to strengthen the independence of statutory auditors and improve quality of audit. It appears that the Government is keen to ensure that the independence of statutory auditors is not affected by any weakness in the corporate governance.

4. Accountancy Museum:

ICAI – Accountancy Museum was opened at ICAI Bhavan, Noida, on 2-2-2009. The museum presents rare and historic images (evidence of the oldest balance sheet in human civilisation) and documentary evidence of the evolution of accountancy in India. The items on display include the minutes of Indian Accountancy Board (responsible for the birth of the Institute), first gold medals of R.A. final and CA final examinations, first annual report of the Council, our own first balance sheet, rare photographs and so on. It presents very unique images including documents that have been acquired from the British Museum, London, and other private collectors from India as well as abroad. This museum will serve as a great source of learning, inspiration and professional pride for all of us.

5. Results of CA. Examinations:

i) CPT (December, 2008) – out of 89,253 (including 11,588 girls) students who appeared, 34,251 (38.3%) passed CPT examination.

ii) Final (November, 2008) – Both Groups – Out of 14,606 students who appeared, 2,961 (20.27%) passed.

Group I – out of 6,588 students who appeared, 1,235 (18.76%) passed.

Group II – out of 9,235 students who appeared, 1,952 (21.13%) passed.

6. MoU with CPA Australia:

ICAI has signed MoU with CPA Australia. As per the MoD reached, members of ICAI who are graduates will be eligible for CPA Australia membership on passing one paper on Business Strategy & Leadership. On the other hand, members of CPA Australia will be eligible for ICAI membership, subject to passing two papers on Corporate and Allied Laws and Taxation and two more papers on Advanced Auditing and Professional Ethics and Financial Reporting, if they have not already passed them as part of the CPA Australia programme.

This MoU will open professional opportunities to our members in Australia and this will bring the two countries, India and Australia, closer.

7. Auditing Standards:

The following Auditing Standards are issued and published in C.A. Journal for February, 2009 on pages stated below:

i) Standard on International Audit (SIA) 12

Internal Control Evaluation (Page 1444-1448)

ii) Standard on Internal Audit (SIA) 13

Enterprise Risk Management (Page 1449-1450)

iii) Revised Standard on Auditing (SA) 530

Audit Sampling (Page 1451-1456)

iv) Revised Standard on Auditing (SA) 540

Auditing Accounting Estimates, including Fair Value Accounting Estimates and Related Party Disclosures.

8. ICAI News:

(Note: Page Nos. given below are from CA. Journal for February, 2009)

i) Enhancing Audit Quality:

Some observations made by the Financial Reporting Review Board are listed on Page 1417 in order to enable members to improve the quality of audit of corporate bodies. These observations relate to presentation under various heads in Balance Sheet and Profit & Loss AI c. as required under Parts I and 11 of Schedule VI of the Companies Act.

(ii) Certificate Course on Enterprise Risk Management:
The Internal Audit Standards Board of ICAI has launched the above course for our members. The duration of this course is 200 hours spread over 6 weekends. Details are given on Page 1431.

iii) ICAI publications:

a) Manual on Concurrent Audit of Banks.

b) Technical Guide on Review and Certification of Investment Risk Management Systems and Process of Insurance Companies.

c) Guide to Implementing Enterprise Risk Management.

BCAJ Admin

Miscellaneous

CARO Audit Report in case of a company where in earlier years, manipulations admitted by the erstwhile management and previous years audit reports withdrawn by earlier auditors

Satyam Computer Services Ltd. — (31-3-2009)

Compiler’s Note:

The main Audit Report of the Company was published in February 2011 (pages 87-92) issue of BCAJ. Given hereunder are relevant extracts from the CARO report. Since disclosures in the Notes to Accounts referred to in the audit report are voluminous, the same are not reproduced here. The same can be made available by BCAS on request.

Annexure to the Auditors’ Report:

(Referred to in paragraph 5 of our report of even date)

(i) Having regard to the nature of the Company’s business/activities/result/transactions, etc., clauses (viii), (xii), (xiii), (xiv), (xix) and (xx) of CARO are not applicable.

(ii) In respect of its fixed assets:

(a) The Company has maintained records of fixed assets showing particulars, including quantitative details and situation of the fixed assets situated within India except that quantitative details, asset description, etc., in respect of some of the fixed assets, need to be updated in the Fixed Assets Register. According to the information and explanations given to us, in respect of the fixed assets situated at the overseas branches of the Company, the Company has not maintained complete records showing the quantitative details and situation of fixed assets.

(b) The fixed assets were not physically verified during the year by the Management. Refer to paragraph 18(c) of the Auditors’ Report also.

(c) The fixed assets disposed of during the year, in our opinion, do not constitute a substantial part of the fixed assets of the Company and such disposal has, in our opinion, not affected the going concern status of the Company.

(iii) In respect of its inventory:

(a) As explained to us, the inventories were not physically verified during the year by the Management.

(b) Since no physical verification was conducted, reporting on the procedures followed by the Management does not arise.

(c) In our opinion and according to the information and explanations given to us, the Company has not maintained proper records of its inventories during the year, though the required adjustments to account for the inventory in the books of account were made based on the information available with the Management as at the year end. Refer to Paragraph 12(d) of the Auditors’ Report also.

(iv) Subject to the comments in paragraphs 8 and 12(b) of the Auditors’ Report, in respect of loans, secured or unsecured, granted by the Company to companies, firms or other parties covered in the Register u/s.301 of the Act :

(a) With respect to the transactions recorded for the period from 1st April to 31st December, 2008, as the Register maintained by the Company (updated as at that date) has been seized by the Income Tax Department, only photocopies were made available for our verification. Subject to our reliance on such photocopies, the Company has not granted or taken any loans, secured or unsecured, to/from companies, firms or other parties covered in the Register maintained in pursuance of section 301 of the Act, during the period from 1st April to 31st December, 2008.

(b) According to the information and explanations given to us, the Company has not granted or taken any loans, secured or unsecured, to/from companies, firms or other parties covered in the Register maintained in pursuance of section 301 of the Act for the period from 1st January to 31st March, 2009.

(v) In our opinion and according to the information and explanations given to us, there was no adequate internal control system commensurate with the size of the Company and the nature of its business with regard to purchases of inventory and fixed assets and the sale of goods and services. During the course of our audit, we have observed several major weaknesses in such internal control system. Refer to paragraph 18(a) of the Auditors’ Report also.

(vi) Subject to the comments in paragraphs 8 and 12(b) of the Auditors’ Report, in respect of contracts or arrangements entered in the Register maintained in pursuance of section 301 of the Act, to the best of our knowledge and belief and according to the information and explanations given to us and subject to our reliance on the photocopies of the Register for the period from 1st April to 31st December, 2008 [Refer Item (iv)(a) above]:

(a) The particulars of contracts or arrangements referred to in section 301 of the Act that needed to be entered in the Register maintained under the said section have been so entered.

(b) There were no transactions in excess of Rs.5 lakhs in respect of any party.

(vii) Subject to our comments in paragraph 8 of the Auditors’ Report, according to the information and explanations given to us, the Company has not accepted any deposit from the public during the year.

(viii) In our opinion, read with our comments in paragraph 18(a) of the Auditors’ Report, the Company did not have an internal audit system commensurate with its size and nature of its business.

(ix) According to the information and explanations given to us in respect of statutory dues:

(a) Whilst the Company has been generally regular in depositing undisputed dues relating to Investor Education and Protection Fund, Wealth Tax and other material statutory dues applicable to it with the appropriate authorities, there were significant delays in depositing undisputed dues in respect of Provident Fund, Employees’ State Insurance, Tax Deducted at Source, Sales Tax/VAT, Works Contract Tax and Service Tax.

(b) There were no undisputed amounts payable in respect of Provident Fund, Investor Education and Protection Fund, Employees’ State Insurance, Wealth Tax, Sales Tax/VAT, Service Tax, Cess and other material statutory dues in arrears as at 31st March, 2009 for a period of more than six months from the date they became payable except in respect of Tax Deducted at Source amounting to Rs.171,945 and certain overseas taxes amounting to Rs.866,456. As regards to income tax, we are unable to comment on the dues in arrears as on 31st March, 2009 for a period of more than six months from the date they became payable in view of the matters described under paragraph 14 of the Auditors’ Report.

c) Details of dues of Income Tax, Sales Tax, Service Tax and Cess which have not been deposited as on 31st March, 2009 on account of disputes are given below:
(not reproduced here)

x) The accumulated losses of the Company at the end of the financial year have exceeded the net worth of the Company. Further, the Company has incurred cash losses in the financial year ended 31st March, 2009. For the reasons stated in paragraph 15 of the Auditors’ Report, we are unable to comment on the cash losses for the immediately preceding financial year.

xi) In our opinion and according to the explanations given to us, the Company has not defaulted in the repayment of dues to banks. The Company does not have any dues to financial institutions and has not issued any debentures.

xii) In our opinion and according to the information and explanations given to us, the terms and conditions of the guarantees given by the Company for loans taken by some of its sub-sidiaries from banks and financial institutions, as made available to us for our verification, are not prima facie prejudicial to the interests of the Company considering the nature of the guarantees, purposes and needs.

xiii) In our opinion and according to the information and explanations given to us, term loans have been applied for the purposes for which they were obtained, other than temporary deployment pending application.

xiv) In view of our comments in paragraph 8 of the Auditors’ Report, we are unable to comment whether the funds raised on short-term basis have been used during the year for long-term investment.

xv) The Company has not made any preferential allotment of shares to parties and companies covered in the Register maintained u/s.301 of the Companies Act, 1956 during the year.

xvi)To the best of our knowledge and according to the information and explanations given to us, the details of fraud on or by the Company noticed or reported during the year are given below:

a) As stated in paragraph 6 of the Auditors’ Report, there were various financial irregularities which are more fully described in Note 3 of Schedule 18.

b) Various other instances of fraud noticed by the Management involving the employees of the Company/vendors of the Company, the amounts whereof were not material and the same have been suitably dealt with in the financial statements of the Company.

BCAJ Admin

Miscellaneous

From Published Accounts

Section B : Miscellaneous

9 Non disclosure of items in companies wherein Joint Control
is exercised (as required by AS 27)

Electrosteel Castings Ltd. — (31-3-2009)

From Notes to Accounts

26(a)The Company has invested in equity shares of Domco
Private Limited (DPL), a Company incorporated in India and has joint control
(proportion of ownership interest of the Company being 50%) over DPL along with
other venturers (the Venturers). The Venturers had filed a petition before the
Company Law Board, Principal Bench, New Delhi (CLB) against the Company on
various matters, including for forfeiture of the Company’s investment in equity
shares of DPL. The Company had inter alia filed a petition before the Hon’ble
High Court of Jharkhand at Ranchi. The Hon’ble High Court of Jharkhand at Ranchi
upheld the Company’s appeal and decided that the matter would have to be
referred for Arbitration. The Venturer has challenged the aforesaid judgment in
the Divisional Bench of the Hon’ble High Court of Jharkhand at Ranchi. Pending
final outcome of the matter and since, the other Venturers are not providing the
financial statements of DPL, disclosures as regards contingent liability and
capital commitments, if any, aggregate amounts of each of the assets,
liabilities, income and expenses related to the Company’s interest in DPL have
not been made in these accounts.

10 Change in accounting policy on account of change of
management estimates for warranty provision and depreciation

MRF Ltd — (30-9-2009)

From Notes to Accounts

Changes in Accounting Policies

i) The warranty provision has been recognised based on
management estimates regarding possible further outflow on servicing the
customers during the warranty period, on the sales affected during the year.
These estimates are computed on a scientific basis, as per past trends of such
claims, which hitherto were accrued and recognised based on claims preferred.
Due to this change, the profit for the year is lower by Rs.21.25 Crore.

ii) The Company has hitherto been charging depreciation on
windmills on the Straight Line Method, as Continuous Process Plant at the rates
and on the basis specified in Schedule XIV to the Companies Act, 1956. The
management has thought it prudent to switchover from the Straight Line Method to
the Reducing Balance Method to follow a uniform practice and has re-calculated
the depreciation from the date of such assets coming into use. As a result, the
charge for depreciation is more by Rs. 15.75 Crore (including Rs. 8.11 Crore net
for Deferred Tax of Rs. 4.17 Crore for the earlier years) and the profit for the
year is lower by the said amount.

From the Auditors’ Report

In our opinion and to the best of our information, and
according to the explanations given to us, the said accounts, read with Note No.
I (Q) in the notes forming part of the accounts, in respect of changes in
accounting policies relating to provision for warranty and change in the basis
of providing depreciation, resulting in the profit for the year and the reserves
being stated lower by Rs. 37 Crore and read together with other notes thereon,
give the information required by the Companies Act, 1956, in the manner so
required and also give a true and fair view, in conformity with the accounting
principles generally accepted in India;

Nature of Provisions

Warranties

Sales Tax / VAT

Excise Duty

2008-09

2007-08

2008-09

2007-08

2008-09

2007-08

Carrying amount at thebeginning of the year

26.09

15.06

18.14

7.00

1.82

Nature
of Provisions

Liquidated damages

Other Litigation Claims

Total

Carrying
amount at the

2008-09

2007-08

2008-09

2007-08

2008-09

2007-08

beginning
of the year

11.88

9.09

–

57.93

31.58

Additional provision

made
during the year

–

2.79

1.98

–

27.98

32.27

Amounts used

during
the year

–

2.49

1.77

Unused amount reversed

during
the year

–

9.18

4.15

Carrying amount at the

end of
the year

11.88

1.98

–

74.24

57.93

11. Disclosures for nature of and movement in provisions as per AS 29
Crompton Greaves Ltd — (31-3-2009)
From Notes to Accounts
(a)Movement in provisions:

(b)Nature of Provisions:

Product Warranties: The Company gives warran-ties on certain products and services in the nature of repairs / replacement, which fail to perform satisfactorily during the warranty period. Provi-sion made represents the amount of the expected cost of meeting such obligation on account of rec-tification / replacement. The timing of outflows is expected to be within a period of two years.

Provision for sales tax represents sales tax liability on account of non-collection of declaration forms and other legal matters which are in appeal under the Act / Rules.

Provision for excise duty represents the differen-tial duty liability that is expected to materialise in respect of matters in appeal.

Provision for liquidated damages has been made on contracts, for which delivery dates are exceeded and computed in a reasonable and prudent manner.

Provision for litigation related obligations represents liabilities that are expected to materialise in respect of matters in appeal.

(c)Disclosure in respect of contingent liabilities:
Refer Schedule 19.

12. Forfeiture of advance received against sale of immovable property not recognised in the Profit and Loss account
Crompton Greaves Ltd— (31-3-2009)

From Notes to Accounts

Other liabilities include Rs. 8.30 Crore received as ad-vance against sale of immovable property of the Com-pany. As per agreements with buyers, the Company is entitled to forfeit the said amounts, if the buyers do not comply with the conditions of sale within the stipulated time. Since, the buyers have failed to comply with the conditions and hence, the Company has forfeited these amounts received in accordance with the terms of the agreements. The buyers have filed suits in the Courts for recovery of the advances paid by them. The Com-pany contends that as per the force majeure clause of the agreements is not required to be refunded. Pending disposal of the cases by the Courts, the Company, as a measure of prudence, has not recognised the said

amount in the profit and loss account.

BCAJ Admin

ORDERS OF CIC

Right to Information

Section 2(f) of the RTI ACT: INFORMATION Section 2(f) which defines the word
‘information’ provides as follows.

In this Act, unless the context otherwise requires.

(f) ‘Information’ means any material in any form,
including records, documents, memos, e-mails, opinions, advices, press
releases, circulars, orders, logbooks, contracts, reports, papers, samples,
models, data material held in any electronic form and information relating
to any private body which can be accessed by a public authority under any
other law for the time being in force;

“According to the Commission, ‘information’ which is
requested u/s.6(1) of the RTI Act refers to only that information which is
available on record. Such information cannot be created. The terms ‘opinions’
and ‘advices’ which are brought within the purview of ‘information’ u/s.2(f) of
the RTI Act are opinions or advices that are already present on record. It does
not mean that if the opinion or advice of the public authority is sought
u/s.6(1) of the RTI Act, the said opinion or advice shall have to be created. It
must be an opinion or advice which is already on record. The creation of
information by the public authority every time such information is sought
u/s.6(1) of the RTI Act shall render governance impossible. However, the
Commission has observed that there are certain practices within a department
that are peculiar to that department. Such practices or understanding within the
department may not be present in a recorded form. Where information sought
u/s.6(1) of the RTI Act pertains to such general practices or understanding,
then the same must be provided to the applicant, even if such practices or
understanding are not specifically on record.”

The Appellant in the case before the Commission had cited one
order of the Supreme Court of India in the matter of Khanapuram Gandaiah v
Administration Officer & Ors. 2010(1) ID 287 (SC). The Supreme Court of India,
while dismissing the petition, interpreted section 2(f) of the RTI Act and
observed that an applicant u/s.6 of the RTI Act can get any information which is
already in existence and accessible to the public authority under law. The
applicant is entitled to get a copy of the opinions, advices, circulars, orders,
etc but he cannot ask for any information as to why such opinions, advices,
circulars, orders, etc have been passed, especially in matters pertaining to
judicial decisions.

Note: I have not covered in this reporting, the facts of the
case as same are not required to bring out the analysis and interpretation
made of the provisions of Section 2(f).

[Dr. Jitendra Nath Gupta vs. PIO & SDM (Civil Lines):
Decision No. CIC/SG/A/ 2010 / 00 2398/ 9878 of 22.10.2010] [2010(2) ID 593 (CIC,
DELHI)]

? Mr. Virajoo Kumar had asked Telecom Regulatory Authority of
India (TRAI) to provide him certain information in respect of Mobile no.
09304549785..

PIO of TRAI replied to inform the applicant that no such
information was being maintained by TRAI.

During the hearing before the Commission, the representative
of TRAI submitted that TRAI can call for such information from the service
provider as it needs for its own purposes by passing an order in writing but the
information requested for by appellant is not wanted by TRAI and therefore, it
is not bound to call for this information from the service provider.

As per the clause 2(f), information also includes
‘information relating to any private body which can be accessed by a public
authority under any other law for the time being in force.’ In other words, if
TRAI has authority under any law to access information from Reliance Company, it
can access that information for onward transmission to the information seeker.
According to Shri. Abraham, u/s.12of the TRAI Act,1997, TRAI has the authority
to call for information from the service provider by passing an order in writing
but this information should be such as is needed by TRAI for its own purpose. In
other words, according to him, TRAI cannot seek information from a private
entity for servicing the RTI Act.

Hereunder I reproduce paras 6 to 9 of the
decision –

6. Clause (a) of section 12(1) is reproduced
below –

‘(a) call upon any service provider at any time to furnish in
writing such information or explanation relating to its affairs as the Authority
may require’

Shri Abraham lays emphasis on the last 05 words of the above
clause viz. ‘as the Authority may require.’ It is his interpretation that this
expression means that TRAI can call for information only when it needs it for
its own purposes and not for the purposes of supplying it to the information
seeker under the provisions of the RTI Act.

7. We are afraid, the construction put on clause (a) by Shri
Abraham is not correct. According to us, the true meaning of the expression ‘as
the Authority may require’ is ‘as the Authority may direct’. In other words,
TRAI can call for such information from a private entity as it needs for its own
purposes as also for the purpose of servicing the RTI Act.

8. The above interpretation also finds support in the
Judgement dated 25.9.2009 of the Delhi High Court in WP (civil) No 765 of 2007 (Poorna
Prajna Public School Vs CIC) wherein High Court favoured wider interpretation of
the word ‘information’. The relevant part of para 16 of the judgement is
extracted below: –

“Further, information which a public authority can access
under any other law from private body is also ‘information’ u/s.2(f). The public
authority should be entitled to ask for the said information under law from the
private body. Details available with a public authority about a private body are
‘information’ and details which can be accessed by the public authority from
private body are also ‘information’ but the law should permit and entitle the
public authority to ask for the said details from a private body”.

DECISION

9. In view of the above, we are of the opinion that the
appellant is legally entitled to seek the information from TRAI u/s 2(f) of the
RTI Act and TRAI is mandated to call for such information from the service
provider (Reliance Company in this case) as mentioned hereinabove and furnish
the same to the appellant. We respectfully disagree with the view taken by other
Single Benches of the Commission.

[Virajoo Kumar vs. TRAI: Decision No. CIC/DS/ C/
2010/00 332 decided on 25.10.2010] [2010(2) ID 661(CIC DELHI)]

PART B: The RTI Act, 2005

In the last issue (Feb 2011) I had reported on the directions issued by the Central Information Commission (CIC) on 09.12.2010 to all the Central Government’s Public Authorities through the Min-istries & Departments of Government of India. It appears that landmark initiative taken by the CIC is not bearing good fruit.

Of the 1,600 public authorities (government departments, apex bodies, autonomous organisations and ministries) listed by the Commission, only 125 have obeyed its direc-tive and appointed transparency officers. The macro picture at the central level is no better with only 34 of 70 odd ministries and apex bodies appointing transparency officers. The ministries of finance, home and culture and the Prime Minister’s Office have done nothing except expressing their intention to appoint a transparency officer.

The Department of Personnel and Training (DoPT), the parent department of the Commission, has taken exception to the directions and said that by giving such directions to departments, CIC has overstepped its brief. In its letter to the authority, DoPT has said that by appointing transparency officers CIC was trying to ‘create another bureaucracy’.

CIC, however, feels that it is only trying to assign another responsibility to the same set of bureaucrats present in the government departments. Speaking to ET, Chief Central Information Commissioner Satyanand Mishra said, ‘We are examining the matter. The Com-mission does not have the powers to withdraw any of its orders. At the same time we don’t need to justify our orders. If any department has an objection it can only take legal recourse. Over the past few years in our deliberations as Information Commissioners, we had found that had the Ministries voluntarily disclosed information many applications would not have been filed. This is why the directive was given.’

Information on & Arround

Gandhigiri for getting information:

Four members of Deshbhakti Andolan distributed roses to employees at the Charity Commissioner’s office in Worli one day in early February.
Deshbhakti Andolan resorted to Gandhigiri after the Charity Commissioner’s Office, in response to a query filed under the Right to Information Act by one of the andolan members, said it had lost pertinent files and papers.
Charity Commissioner on complaint made has assured that the file would be traced and information shall be provided.

Working at the Commissions:

The Public Cause Research Foundation has analysed 79,813 decisions passed by the CICs and SICs across the country. The researchers found that in 59,631 cases, the information was delayed, but only 1,896 officials were punished. The report said had these penalties been imposed, the exchequer would have got nearly Rs. 86 crore during 2009-10. ‘Twenty-six Commissioners across the country did not impose a single penalty in the whole year’

Working at crematoria in Mumbai:

Activist Anil Galgali, who sought information under the Right to Information Act, said those who register the number of deaths in the crematoria were over-worked.
There is a paucity of staff at the crematoria run by the municipal administration. With 36 posts lying vacant in the 46 crematoria run by the BMC, the delay in getting the last rites done has been inconveniencing citizens as well as the staffers.
The civic administration runs 46 crematoria, 7 cemeteries for Christians and 10 for Muslims. Apart from these, there are 125 privately-run ones and 11 powered by electricity.
Galgali said that after the RTI application was filed; the civic body issued a circular directing the authorities to fill the vacant posts.

PART D: RTI & SUCCESS STORIES

Normally, my article contains 3 parts as would be observed above. Since long, I have been wanting to add PART D: containing success stories of RTI. BCAS Foundation & Public Concern for Governance Trust (PCGT) (where at I am a trustee) run 4 RTI Clinics and on an average 50 individuals visit these clinics in a month and are provided RTI guidance and they submit RTI applications and appeals etc. We now intend to arrange feedback on their applications etc. As such very few come back to report the success they get or solutions that they achieve though many have satisfactory results.

Similarly, I believe many CAs make RTI applications etc and have success stories.

It is with the above belief that I intend to add PART D as above to my article. I request all read-ers to send their RTI success stories in brief. We would like to report them here. Please join in this crusade.

Hereunder one success story:

Extracts from Akila Maheshwari’s email of 23 Feb 2011:

Dear Narayan Varmaji:

First of all let me profusely thank you and other members of PCGT and BCAS for guiding my hus-band Dr. Shiban Charagi to fight his case through RTI. He was not only successful to get justice for himself but for others too, when a large Goverment Organisation like B.A.R.C. (Bhabha Atomic Research Centre) under Department of Atomic Energy had to strictly adhere to Supreme Court Judgements of 12th May 2008 by Justice Markandeye Katju.

BARC has started informing officers at all levels about their CR Grading by their Superiors. Also an officer can challenge his CR grading by refusing to put his signature on the intimation of the CR Grading.

My husband (who has the rare privilege of being listed in MARQUIS who is who in the world) was denied PRIS (Performance related incentives scheme) on the basis of poor assessment by his immediate supervisor. My husband has been a UNESCO Scholar. He was a one of the few employees (out of 15300) denied PRIS on poor CR grading. His CR was assessed in a hurry by a biased supervisor. He was also denied facilities for research work and manpower assigned to him removed and he was thereby harrased and humiliated.

My husband filed a letter of grievances to the PMO. This was forwarded to the Secretary DAE. Other reminders followed. But no action took place at ground level.

Later my husband took guidance from BCAS and was successful in getting a sum of over a lakh rupees (pre tax deduction). He was informed of his previous grade in CR. Later his grading was revised. After re-assessment PRIS sanctioned. This is the first such case in the history of the Department of Atomic Energy.

A battle that would have cost lakhs of rupees if taken up legally with CAT etc and would have been time consuming also and few years delay ended within two to three months of filing the RTI petition.

Hail RTI! Hail BCAS & PCGT and all the activists who made RTI a reality! RTI is a new pillar of Indian democracy.

BCAJ Admin

Right To Information

r2i

Tax records of political parties :

Very interesting and significant decision is given by CIC Mr.
A. N. Tiwari under appeal decided on 29-4-2008.

One Ms. Anumeha C/o. Association for Democratic Reforms (ADR)
of New Delhi had sought information from the CPIO, Central Board of Direct
Taxes, New Delhi as noted hereunder. The said application was transferred to
appropriate 9 CPIOs i.e., the appropriate Commissioners of Income-tax
(including CIT of Mumbai, New Delhi, Chennai). The information sought was on the
following three points :

(i) Whether the political parties mentioned in the RTI
application have submitted their Income Tax Returns for the years 2002-03,
2003-04, 2004-05, 2005-06, 2006-07.

(ii) PAN allotted to these parties.

(iii) Copies of the Income-tax returns filed by the
political parties for the afore-mentioned years along with the corresponding
assessment orders, if any.

While CIT, Jammu & Kashmir and Guwahati provided the
information, all other CPIOs declined to divulge information citing various
reasons, some of which were :

Information is covered u/s.8(1)(d), (e), (g), (h) or (j) of the RTI Act.

Permanent Account Number (PAN) is a statutory number, which functions as a
unique identification of each taxpayer. Making PAN public can result in misuse
of this information by other persons and could compromise the privacy of the
financial transactions linked with PAN.

Information relates to third parties who have objected to the disclosure of
this information.

Information is subject to confidentiality u/s.138 of the Income-tax Act, 1961.

In the first appeal made to CCIT, Bhubaneswar, the matter was
remanded to the CPIO but in other cases, concerned CCITs dismissed the appeals.

Before the Commission in the second appeal, the appellant
made certain submissions including the following :

(i) The avowed objective of a political party in a
democracy is to represent people in Parliament and Legislature that are
law-making bodies through the process of elections and that their very
existence is indicative of their goal of representing the interests of the
people who elect them to power.

(ii) Each and every act of theirs should be open to public
scrutiny. Transparency in their working and financial operation is essential
in larger public interest and all sections of government, including the
Income-tax Department, are duty bound to hold the public interest above the
interests of political parties.

(iii) The disclosure of financial information relating to
political parties including I.T. returns and assessment orders to general
public would promote such transparency and reduce the role of black money and
other undesirable, even illegal activities in the operation of political
parties.

Since the information sought involved significant issues, the
Commission decided to issue notices of hearing to all the 20 political parties
in respect of which information was sought and also to the Election Commission
and the Ministry of Law and Justice asking them to file their written
submissions.

Both the Election Commission and the Ministry of Law &
Justice filed their comments. Also political parties submitted their comments.
While CPI & CPM submitted ‘no objection’ to the disclosure of information, other
political parties including (1) BSP (2) NCP (3) The Samajwadi Party (4) BJP (5)
DMK (6) AICC objected to the disclosure of information on various grounds.

The applicant in her rejoinder to the replies submitted by
the above-noted parties made written submissions, which included following
points :

That she herself and her organisation are completely non-political and non-partisan. The Association for Democratic Reforms (ADR), which she represents, works for improving the governance, democratic, political and electoral processes in the country. Earlier also they have filed Public Interest Litigations (PILs) in the Delhi High Court, which resulted in the landmark and historic judgment of the Supreme Court (March 13, 2003) making it mandatory for candidates contesting elections to State Assemblies and Parliament to disclose their criminal antecedents, if any; assets and liabilities; and educational qualifications, by way of a sworn affidavit to be filed as an essential part of the nomination form.

It is also pertinent to refer to the recommendations of the Law Commission of India contained in their 170th Report on ‘Reform of the Electoral Laws’. An extract from para 3.1.2.1 of which is reproduced below :

“It is therefore, necessary to introduce internal democracy, financial transparency and accountability in the working of the political parties. A political party which does not respect democratic principles in its internal working cannot be expected to respect those principles in the governance of the country. It cannot be dictatorship internally and democratic in its functioning outside.”

The appellant also submitted that where plural remedies occur under different enactments, even if inconsistent, they empower a person to choose one, (Bihar State Cooperative Marketing Unions Ltd. v. Uma Shankar Saran, AIR 1993 SC 1222). In the alternative, assuming without prejudice that there is no inconsistency or discordance between the provisions of the RTI Act and S. 138 of the Income-tax Act and both can be given effect to, then the existence of an alternative remedy u/s.138 of the Income-tax Act or any other Act would not bar a citizen from seeking information tinder the RTI Act, 2005 and to accept any other interpretation would mean to render the RTI to a nullity. The RTI Act is an encompassing piece of iegislation and S. 2(f) of the said Act specifically defines ‘information’ to include If information relating to a private body which can be assessed by a public authority under any other lawfor the time being in force. ” The Right to Information Act, 2005 (RTI Act) on the other hand is a specific and special piece of legislation directed towards providing for access to information under the control of public authorities.

The Commission framed the following issue for determination:

Whether income tax returns along with its assessment order and PAN of various political parties can be considered to be exempted u/s.8(1)(d), (e), (g), (h) and (j) of the RTI Act and as to whether such information can be disclosed in larger public interest?

In its decision covering 22 paras and running into nearly 8 pages, the Commission, ruled on the above issue. Some paras in full and others in part are reproduced hereunder:

Political parties are a unique institution of the modern Constitutional State. These are essentially civil society institutions and are, therefore, non-governmental. Their uniqueness lies in the fact that in spite of being non-governmental, political parties come to wield directly or indirectly influence exercise of governmental power. It is this link between State power and political parties that has assumed critical significance in the context of the Right of Information Act which has brought into focus the imperatives of transparency in the functioning of State institu-tions. It would be facetious to argue that transparency is good for all State organs, but not so good for the political parties, which control the most important of those organs. For example, it will be a fallacy to hold that transparency is good for the bureaucracy, but not good enough for the political parties, which control those bureauracies through political executives.

In modern day context, transparency and accountability are spoken of together as twins. Higher the levels of transparency, greater the accountability. This link between transparency and accountability is sharply highlighted in the Preamble to the RTI Act.

The RTI Act aims at expanding accountability through transparency at all levels of governance. It is difficult to be persuaded by the argument that though political parties control the political executives who are their appointees these parties should be allowed to be insulated from the demands of transparency.

The question that additionally needs to be asked is whether the avowed purpose of the RTI Act, as set out in its Preamble to combat corruption is being achieved by allowing the finances of the political parties to remain beyond public scrutiny or even public view. There is now widespread concern about a hyphenated relationship developing between party finance and political corruption. The lack of openness and transparency in party finance is matched by the lack of adequate State regulation of such finance.

The scheme of the Act makes it abundantly clear that disclosure of information to a citizen is the norm and non-disclosure by a public authority an exception and it necessitates justification for any decision not to disclose information.

Democratic States, the world over, are engaged in finding solutions to the problem of transparency in political funding. Several methodologies are being tried such as State subsidy for parties, regulation of funding, voluntary disclosure by donors at least large donors and so on. The German Basic Law contains very elaborate provisions regarding political funding. S. 21 of the Basic Law enjoins that political parties shall publicly account for the sources and the use of their funds and for their assets. The German Federal Constitutional Court has in its decisions strengthened the trend towards transparency in the functioning of political parties. It follows that transparency in funding of political parties in a democracy is the norm and, must be promoted in public interest. In the present case that promotion is being effected through the disclosure of the Income-tax returns of the political parties.

Based on the above, the Commission ruled as under:

The Commission directs that the public authorities holding such information shall, within a period of six weeks of this order, provide the following information to the appellant:

Income-tax returns of the political parties filed with the public authorities and the assessment orders for the period mentioned by the appellant in her RTI-application dated 28-2-2007.

The Commission also directs that the PAN of those political parties whose Income-tax returns are divulged to the applicant shall not be disclosed. It has been decided not to disclose PAN in view of the fact that there is a possibility that this disclosure could be subjected to fraudulent use, reports of which have lately been appearing. It is, therefore, considered practical that while Income-tax returns and the assessment orders pertaining to political parties be disclosed, there should be no disclosure of the PANs of such parties.

[Ms. Anumeha, Clo ADR, New Delhi v. CCITICIT of 9 jurisdictions in nine appeals bearing different numbers]

Part B : The RTI Act

Standing Committee of the Parliament on RTI Act, 2005:

National Campaign for People’s Right to Information (NCPRI) has made a presentation before the above committee. Some of the items of the said presentation are worth noting to understand present deficiencies of the RTI Act.

In February 2009, the items were reported :

1. Level of awareness.

2. Use and misuse of the RTI Act.

Hereunder other 2 items:

Reduction of 20-year period for keeping documents:

A common misunderstanding is that the RTI Act only allows access to information that is less than 20 years old. In fact, the RTI Act does not exempt information on the basis of how old it is.

Currently the law [(So8(3)] only allows three categories of exemptions for information older than 20 years, namely, national security [8(1)(a)], Parliamentary privilege [8(1)(c)], and cabinet papers [8(1)(i)]. Therefore, the law does not restrict access to information, which is more than 20 years old, but actually makes it easier to access older information than current information, which is less then 20 years.

However, this does not mean that departments have to preserve records for perpetuity. Departments are free to destroy records or to transfer them to archives as per their rules and procedures related to the destruction or archiving of records. S. 19(8)(a)(iv) of the RTI Act empowers and obligates the Information Commissions to examine the rules and procedure relating to the destruction of records of any public authority and to give directions as necessary to bring these in tune with the intention of the RTI Act. Therefore, we do not think any change is required.

Impediments, including the Official Secrets Act : Our study suggest that the major impediment to the implementation of the RTI Act is the lack of awareness among the people on how to use the Act and what benefits it could have.

A close second is the mindset of the public authorities and the PIOs to find all possible reasons to deny information. The fact that Information Commissions are not imposing penalties, as mandated by the RTI Act, has made many PIOs think that there are no costs to be paid for denying information on the flimsiest of grounds.

Though the RTI Act specifically provides for the overriding of the Official Secrets Act, when there is a conflict between the two, the fact is that the continued existence of the Official Secrets Act (OSA) does cause a fair amount of confusion among both the applicants and the PIOs. Therefore, it might be the best to repeal the OSA and to put the few important provisions that are required, despite the RTI Act, either into an another existing Act like the National Security Act, or into a new Act.

Voluntary disclosures:

We believe that the suo motu voluntary disclosure of information is critical to the success of the RTI Act. As already mentioned, this is perhaps the most effective way in which the pressure of RTI applications on government departments can be minimised. Suo motu declarations not only save time, but also provide protection to applicants from the weaker segments of society, who are otherwise targeted by those who have a vested interest in keeping the information secret.

Suo motu declarations also ensure that government is not just reactive to those who seek information but treats all potential applicants equally. For example, our experience shows that where suo motu declarations are not insisted upon, ration shop owners make sure that those few people who file RTI applications are properly serviced and do not have a cause for complaint. However, this leaves out the very large majority, who for one reason or another either do not file applications or cannot file them. On the other hand, where the complete records of a ration shop are put into the public domain suo motu, the ration shop owner cannot anticipate who among the various customers would check the records and point out any discrepancies. Therefore, the ration shop owner is forced to ensure that everyone’s records are accurate.

Our experience is that most public authorities do not bother to be in compliance of S. 4, and certainly do not put out all the information that could be put out, suo motu. Partly this is because the law does not directly mandate any penalty for non-compliance with S. 4. In addition, there are also no incentives for public authorities to make the effort.

It would perhaps be best if an independent agency from within the government, like the National Informatics Centre (NIC) of the Government of India is given the responsibility of creating, maintaining and updating websites and printed material giving the required suo motu information for all ministries and departments of the government. Additionally, the concerned ministries and departments could also be given positive incentives -like perhaps trophies for those who perform best in terms of suo motu disclosures.

It is also important that suo motu disclosures are not just web-based, as many people in India do not have r access to the web. These should be in printed form, through sign-boards, radio, TV, and even by using voice mail in cell phones and innovatively communicating information through songs and theatre (like the MKSS songs that sing out all the provisions of the RTI Act, and explains them in verse !)

Part C : Other News

Justice D. Y. Chandrachud on the RTI Act:

The Right to Information Act has brought about an enormous change in the way we are governed, assured Justice D. Y. Chandrachud of the Bombay High Court at a recent talk on ‘Democracy, Governance and the Rule of Law’. It transpired that people don’t just seek details of case backlog or judges’ salaries, sometimes there are ‘wholly frivolous’ que-ries as well. Recently, an RTI application asked the High Court to reveal how much was spent on flower decoration at a recent function or at the banquet. The Judge, however, said people have a right to ask even irrelevant details. A Court officer is now tracking the floral budget. He might just come out smelling of roses.

BMC to punish the officer for RTI delay:

The Brihanmumbai Municipal Corporation’s city engineer has issued a show-cause notice to a Public Information Officer – in this case, the Deputy Chief Engineer (Planning and Development) – asking why his increment for next year should not be withheld. The order comes after State Information Commissioner Suresh [oshi levied a fine Rs.25,000 on the officer for not dispatching a Right to Information (RTI) application to the department concerned in time. The State Information Commissioner had also said in his order that the Municipal Commissioner should investigate the delay and take action as necessary.

Answer sheet on examination paper:

The Calcutta High Court allowing transparency in the evaluation system ruled that students had the right to see their answer sheet and educational institutions should allow it. The verdict came on an appeal by Calcutta University against a Single Bench’s order directing it to show a maths answer sheet to Presidency College student Pritam Rooj after he had sought a re-evaluation. Under the current system, students who doubt the marking can seek a revaluation of their answer sheets. But that is done by the examiner and students have to take the examiner’s word for it. Giving its ruling, a Division Bench comprising Chief Justice S. S. Nijjar and Justice Dipankar Datta directed those concerned to act on all such pending applications and show the answer sheets to aggrieved students within a month. The Bench, however, also set a time limit for students to see their answer sheets.

Performance of Information Commissioners of Maharashtra :

Project expedited on RTI application:

Today the villagers of Rangpar (a tiny village of 750 people, 25 km from Wankaner in Rajkot district) were happy to see that there is a 2 km road connecting their village to highway. The Gando Baval (babool) shrubs along the roadside have been cleared by the grampanchayat authorities. It took a visually challenged Ratna Ala, 26, to open the eyes of the authorities through the right to information (RTI)Act. At last some development work has been started by grampanchayat in Rajkot. For the last two years Ala has been using RTI to get information on how many schemes the panchayat implemented and how much money they spent. Though he did not get accurate information, it helped the panchayat realise that its inefficiency would be exposed. Ala’s struggle is on, but he is happy that the road has been constructed and the dense shrubs, which were a hindrance to passers-by, are cleared.

Discloser of the assets of Commissioners of Information:

Information Commissioners have chosen not to disclose their own assets on the ClC’s website in a development which may cause many to wonder whether the transparency watchdog has trouble following what it preaches to others.

In a candid admission, Chief Information Commissioner Wajahat Habibullah said “All Information Commissioners have declared their assets, but they felt that this information should not be put on the Commission’s website. They did not want it on the ClC website.”

Queried further on why the transparency watchdog was not keen on disclosure of its assets, Habibullah said, “The Commissioners felt that they could put up the information on their personal websites”. Crucially, none of the eight Commissioners have their own website.

BCAJ Admin

Some recent judgments

Service Tax

1. CENVAT credit:

Whether CENVAT credit is available for air travel for
business?

i) CCE, Ahmedabad vs. Fine Care Biosystems 2009 (16) STR 701
(Tri.-Ahmd.)

Commissioner (Appeals) allowed CENVAT credit of service tax
on outward freight and commission on air tickets. It was held that availability
of CENVAT credit on outward freight is till the place of removal that is the
port from which the goods are loaded for export made on FOB was pronounced in
ABB Ltd vs. Commissioner 2009 (15) S.T.R. 23 (Tribunal-LB) and for CENVAT on air
tickets, it was held that the definition of input service was wide enough to
cover all services used directly or indirectly in the manufacture process, the
CENVAT was admissible. Further, the revenue did not submit any proof that the
travel was for other than business purpose.

Whether credit on mobile
phones is available as they are not installed in the factory premises?

ii) CCE & CUS, Nagpur vs. Ultratech Cement Ltd. 2009 (16) STR 611 (Tri.-Mum)

The company availed CENVAT on the mobile phones provided to
the employees. The adjudicating authority allowed the CENVAT and dropped the
demand. The appeal filed by the Department was also dismissed on merits. Then
the appeal was made to the Tribunal with the contention that mobile phone
service is not cenvatable, as the telephone is not installed in the factory
premises. The Department also referred to the pending appeal filed with the
Bombay High Court (Nagpur Bench) against the Tribunal Order No. S/263-264/C-IV/SMB/07
dated 01-06-2007 (in the case of Manikgrah Cement).

However, the company citied various decisions holding that
CENVAT on mobile services was available. The list interalia included:

(a) CCE, Chennai vs. Showa Engineering Ltd & Another 2009
(14) S.T.R. 840 (Tri)

(b) ITC Ld vs. Commissioner of Customs & Cen tral Excise,
Salem 2009 (14) S.T.R. 847 (Tri) = 2009-TIOL-439-CESTAT-MAD

(c) Finolex Cables vs. Commissioner of Central Excise, Mumbai
;I, 2009 (14) S.T.R. 303 (Tri-Mumbai)

(d) Commissioner of Central Excise vs. Excel Corp Care Ltd.
2008 (12) STR 436 (Guj)

(e) Commissioner of Central Excise (LTU), Chennai vs. Brakes
India Ltd., 2009 (13) S.T.R. 684 (Tri-Chennai)

Citing the Gujarat High Court in case of Commissioner vs.
Excel Corp Care (supra), it was held that CENVAT on mobile phones was allowable
and it was observed that the onus to prove that they were directly or indirectly
used in connection with business activity is on the manufacturer.

Is CENVAT credit available
on colony security service, transport for employees and guest house maintenance?

iii) CCE vs Hindustan Zinc Ltd. 2009 (16) STR 704 (Tri.-Bang)

The company was not allowed input credit for colony security
service, transport service for employees and guest house maintenance service.

It was held that for a company, it was the duty to provide
accommodation to the employees and the colony being the property of the company,
it was obligatory for them to provide security also. Hence it was input service,
the definition under 2(1) of CCR being wide to cover such services. In case of
transportation of employees, it was observed that the services were in relation
to the manufacturing of excisable goods and hence it was also an eligible input
service. Similarly, in the case of maintenance of guest house, it was utilized
for the stay of businessmen during their business visit and hence was in
relation to the business activities was considered eligible input service.

Reliance was placed inter alia on:

(i)
Manikgrah Cement vs. Commissioner of C. Ex. & Customs, Nagpur (2008) 9 S.T.R.
554 (Tri-Mum) and

(ii) Commissioner of C. Ex., Nashik vs. Cable Corporation of
India Ltd. (2008) 12 S.T.R. 598 (Tri-Mum)

Whether CENVAT credit on specified services mentioned in Rule
6(3) on capital goods are limited to 20%?

iv) Idea Cellular Ltd. vs. CCE, Ahmedabad 2009 (16) STR 712 (Tri.-Del)

The appellant is engaged in providing cellular mobile service
to their Clients and while rendering this service, they rendered services of
interconnectivity and permitted use of infrastructure to other telephone
services. The revenue contended these were not actually rendering such services
but it was cost sharing and the same was not defined under section 65(115) and
hence they were exempted services. The Tribunal observed that the services were
subsumed in the services rendered by the appellant to the client and hence they
were not exempt services.

Further according to revenue, the 17 specific services and
the CENVAT on capital goods is also restricted to 20%. It was held that the
Board Circular No. 137/203/2007-CX-4 dated 01-10-07 clearly stated that the rule
does not restrict either the specified services or the credit on the capital
goods and the Departmental Circular is binding, unless a contrary decision is
pronounced either by the High Court or the Honorable Supreme Court.

BCAJ Admin

Part B — Some recent judgments

Service Tax

I. Supreme Court :

1.1 Burden of proof : ‘reverse burden’ only when one party
to a transaction is a dealer (S. 12 of KGST Act, 1963)

Haleema Zubair v. State of Kerala, 2009 (13) STR 113 (SC)

The appellant a proprietor had two concerns — one having
trading activity and another providing professional services of inspection and
certification of quality. Appeal was filed on being aggrieved with the additions
made by the sales tax assessing authority demanding sales tax on the service.
Income-tax returns, assessment orders and other certificates were produced
before the Appellate authority. The Appellate authority reduced the additional
income from 5% to 2.5%. Appeal was filed with the Sales Tax Appellate Tribunal,
where it was contended that as per S. 5(1)(iii) of KGST Act (the Act),
consideration received for transferring right to use any good for any purpose
was liable for tax. The Revenue claimed that the relevant documents were not
produced before the lower authorities and the burden of proof as to taxability
lay on the assessee as per S. 12 of the Act.

The orders passed by the Tribunal and the High Court did not
consider distinction between assessment orders under the Income-tax Act and
Sales Tax Act inasmuch as the fact that income tax would be levied on the entire
income, whereas sales tax could be levied only on the ‘sale’ and not the other
income which did not result out of ‘sale of goods’.

The condition precedent to the passing of an order was
assessment of sale. Professional service rendered did not constitute sale, which
attracted service tax. Further, the Supreme Court ruled that in general law, the
burden of proof lay with the State and ‘reverse burden’ must be construed having
regard to the nature of the statute. In the Kerala General Sales Tax Law,
however, S. 12 places the burden on the assessee, provided a transaction of
‘sales’ has taken place and at least one party to it is a dealer. Definition of
‘Dealer’ was analysed and it was concluded that the concern providing services
was not a ‘Dealer’ and professional fees were liable for sales tax. Appeal was
allowed by way of a remand to the adjudicating authority for consideration of
materials placed by the appellant.

Cases relied upon :

(i) BSNL and Another v. Union of India and Others,
2006 (2) STR 161 (SC)

(ii) Girdhari Lal Nannelal v. The Sales Tax
Commissioner, M.P. 1996 (3) SCC 701

1.2 Violation of
principle of natural justice :

Kothari Filaments v. Commissioner of CVS (Port), Kolkata
2009 (13) STR 225 (SC)

The appellant, an importer of lithosphere, placed order with
a foreign company for import of lithosphere. On physical verification out of
total quantity of 860 bags, only 189 had lithosphere and the rest contained
yellow coloured substance ‘Tetracycline’.

Appellants contended it to be the mistake of exporter and
attached the acceptance of exporters for the same to prevent penal action. The
Commissioner in his order gave directions for confiscation of goods and imposed
penalty before completion of inquiry. Appeal was filed on the grounds of
violation of principles of natural justice.

The respondent contended that acceptance of mistake by
exporter did not facilitate compliance of principles of natural justice and the
indication of outcome of overseas inquiry had been placed in the show-cause
notice. It was the duty of the appellant to prove the mistake of the exporter
and refute the conclusions of inquiry, the authority had no liability to
disclose their materials.

It was held by the Supreme Court that person charged with
misdeclaration had right to know the basis on which he was penalised, to reply
effectively as considered inter alia in the case of Rajesh Kumar
& Ors. v. Dy. CIT & Ors., 2007 (2) SCC 181 and thus the principle of natural
justice was held to be violated. Setting aside the order, the matter was
remanded to the Commissioner for consideration afresh.

II. High Court :

Co-operative Society in public service

Green Environment Services Co-Op. Society Ltd. v. Union of
India, 2009 (13) STR 250 (Guj.)

The assessee, a co-operative society, provided treatment of
effluents and managed waste generated by industrial units which were members of
society. They contended that the object of the society was in the nature of
public service i.e., for Prevention & Control of Pollution Provisions of
S. 65(25a) of the Finance Act, 1994 excluded services in the nature of public
services. S. 93 of the Finance Act, 1994 grants power to the Central Government
to grant exemption from payment of service tax by notifying in the Official
Gazette. The facts of the case led to the conclusion that the petitioner-society
had been established with the aid of Central & State Governments for treatment
of industrial effluents and waste materials in public interest. The
representation to the Central Government for exemption would be made within 2
weeks and would be placed by the Central Government within two months from that
day. Interim stay for recovery was granted.

III. Tribunal :

3.1 Air travel agent : Adjustment of tax on cancellation of tickets :

CCE, Jalandhar v. Sharma Travel, 2009 (13) STR 150
(Tri.-Del.)

The respondent, an air travel agent adjusted service tax
amount on cancelled air tickets and paid the differential amount. The adjustment
was disallowed and was upheld by the Commissioner (Appeals). The Tribunal
remanded the matter to the Commissioner (Appeals) to decide on merits, evidences
and in consideration of question of limitation.

The Commissioner set aside the demand, but the
Revenue pleaded to invoke doctrine of unjust enrichment. Rejecting the Revenue’s
appeal, the Tribunal confirmed the order of the Commissioner (Appeals).

3.2 Registered society and a charitable trust whether
liable under categories club or association service, convention service and
commercial training and coaching ?

M/s. Ahmedabad Management Association v. Commissioner of
Service Tax, Ahmedabad, 2009 TIOL 214 CESTAT-AHM

AMA was a registered society and a charitable trust under Society’s Registration Act and Bombay Public Trusts Act. AMA filed an appeal against the order of the Commissioner for confirmation of demand of service tax on services provided by it. Penalties u/s.7SA, u/s.76, u/s.77 and u/s.78 had been imposed.

The appellant contended that AMA was a non-profit making institution as amounts earned by it were utilised for fulfilment of its objectives and members were liable for liabilities, but had no share in surplus as it was ploughed back. Thus, it was not a commercial concern. The programmes conducted were exempted from year 2003 as vocational training by the government. Therefore, these services cannot be classified as ‘Commercial Training and Coaching Services’. The services of a club or association came under the tax net w.e.f. 16-6-2005. Exclusion clause excluded services provided by associations in nature of public service. AMA did not have any profit motive and provided public services, which were excluded from taxable services. Convention service was liable to tax when provided by a commercial concern. Convention events were not only for members but also for general public. A Circular dated 1-11-2006 clarified that non-commercial concerns would not fall under it.

The respondent considered the definition of commercial training and coaching centre as per the Act and did not consider training programmes conducted at AMA as vocational training programmes, which were exempted.

As regards club or association services, since they were provided to members, they were taxable and were not covered by exclusion clause, according to the Revenue.

As regards convention services, since they were provided to general public not free of cost but for consideration, they could not be excluded from the tax net, as per the Revenue.

It was held by the Tribunal that:

a) AMA was not a commercial concern in consideration of its objectives, ploughing back of sur-pluses or no profits in the hands of members. The cases on which decision was relied upon were Great Lakes Institute of Management 2008 (10) STR 202 (Tri.-Chennai) and Institute of Chartered Financial Analysis of India 2008

(TIOL 2036 CESTAT-Bang). AMA was not liable to pay service tax on membership fees received from members of the club, as it was not providing any specific services.

b) The programmes conducted were continuing education programmes and not commercial programmes.

c) Since AMA was not a commercial concern, no service tax could be levied on convention services, and therefore the appeal was allowed.

3.3 CENVAT Credit: Transfer on takeover:

CCE, [aipur v. Hindustan Coca Cola Beverages Pvt. Ltd., 2009 (13) STR 222 (Tri.-Del.)

The issue in this case was of transfer of credit from one bottling plant to another plant. The Revenue contended that neither the ownership nor the capital goods were transferred.

The Commissioner (Appeals) in his order stated that one bottling plant was taken up by another as registration certificate of the taken over plant was surrendered and the unutilised credit was transferred to the plant which took over. There was no revenue loss and no contravention of any rule. The credit was allowed.

Whether construction of jetty, ‘capital goods’ ?

Penalty: interpretation of statute:

Mundra Port & Special Economic Zone Ltd. v. C.E., Rajkot, 2009 (13) STR. 178 (Tri.-Ahmd.)

The appellants were providers of port services, storage and warehousing services and cargo handling services liable for service tax.

The major issue was availment of credit on steel and cement used for construction of jetty and port building. Attention was drawn by the appellant to the definition of inputs and emphasised on expression ‘used for providing output services’ and reliance was placed on the case of State of Punjab & Another v. British India Corporation Ltd., (AIR 1963 SC 459). It was contended that the operations of port and management serviees was not possible without such construction and only incidental to the main activity should be excluded from the purview of expression ‘used for’, therefore the credit on such inputs should be allowed.

It was held that the jetty did not fall within the definition of capital goods and was constructed by the contractor. Cement and steel were used by the contractor for construction services and considering them ‘not used’ for providing port service, credit was disallowed.

The credit of service tax on mobile phones, CHA and surveyor charges, rent-a-cab and professional fees was allowed and credit on club house fees was disallowed as it was for recreation of employees, and was not for providing output services.

Credit of duty on air conditioners, being ‘capital goods’ as per the Rules, was allowed.

Penalty was set aside as the issue involved bonafide interpretation of law.

Ruchi Health Foods Ltd. v. CCE, Chennai, 2009 (13) STR 330 (Tri.-Chennai)

The assessee was in the manufacture of refined oil and vanaspati, used CENVAT credit on capital goods viz. acid oil plant used for refining and processing. Credit availed was disputed as acid oil was manufactured in a separate plant where, according to the Revenue, no dutiable goods emerged. Further, credit of duty paid on computers, paints and welding electrodes was also disallowed.

Refinery was part of the factory and the assessee could take credit of duty paid on capital goods and not on exempted or nilrated goods. The impugned goods produced PFAD also, which was cleared on payment of duty. Acid oil was also cleared on payment of duty. Thus, machinery installed in refinery was not exclusively deployed in producing only non-dutiable products. Declarations as per the rules, records, invoices and returns relating to credit had been furnished to the Dept. indicating that PFAD was also an acid oil which was cleared on payment of duty. Likewise, credit on duty on computers, electrodes in view of decision of Jawahar Mills Ltd. v. CCE, Coimbatore, 1999 (108) ELT 47 (Tri.-LB) were allowed. The order itself was set aside and appeal was allowed.

3.4 Can penalty u1s.76 be reduced?

CCE – Rajkot v. Shri BSGK Shashtry, 2009 TIOL 173 CESTAT-AHM

The Commissioner (Appeals) reduced the penalty uj s.76 against which the Revenue filed an appeal and contending that S. 76 was unambiguous and did not provide liberty to reduce penalty and submitted that decision in M/ s. ETA Engineering Ltd. [2006 (3) STR 429 (Tri. LB)] had to be followed.

Various decisions in which authorities used discretion to impose less penalty u/ s.80 of the Finance Act, 1994 submitted by the appellant were considered and rejecting the Revenue’s appeal, extension of S. 80 by the lower authority was upheld.

3.5 Limitation:

Refund: Whether barred by limitation?

CCE, Pune-III v. M/s. Beharay & Rathi Constructions, 2009 TIOL 178 CESTAT-Mum.

The respondents, being recipient of ‘goods transport agency’ services, thus liable for service tax, availed abatement of 25% instead of 75%, erroneously resulting in excess payment. The refund claim was held to be hit by time bar of S. 11B of Central Excise Act, 1944.

The Commissioner (Appeals) held that tax collected by mistake of law, did not attract S. 11B and cited various case laws in support.

The Tribunal held that among various decisions cited, many were of prior period in which amendment dated 19-9-1991 in S. 11B had not been considered. Therefore, the impugned refund claim filed by the respondents was hit by time bar in consideration of S. 11B.Reliance was placed on Mafatlal Industries Ltd. v. Union of India, 1997 (89) ELT 247 (SC) and Commissioner of Customs v. Aman Electrical Manufacturing Co., 1997 (90) ELT 260 (SC).

Kilburn Engg. Ltd. v. CCE, Vadodara-II, 2009 (13) STR 285 (Tri.-Ahmd.)

The appellants engaged in the manufacture of machinery, who installed, erected and commis-sioned it at customer’s premises and raised separate bill for this. The dispute related to supervision of erection, commissioning of machinery to attract service tax liability under consulting engineering services.

The Commissioner (Appeals) observed that supervision of erection and commissioning required professional knowledge and therefore fell within the scope and ambit of ‘consulting engineering service’ and relied on the case M. N. Dastur, 2002 (140) ELT 341 (Cal.).

The Tribunal relied upon case CCE, Cochin v. BPL Telecom Pvt. Ltd., 2007 (5) STR 349 (Tri. Bang.),

M/s. Jyoti Ltd. v. CCE, Vadodara, 2008 (9) STR 373 (Tri. Ahmd.) and held that technical assistance provided by manufacturer of goods could not be held as consulting engineering services.

It also considered that first and second show-cause notices for the same period for the same facts being barred by limitation, relief was allowed.

3.6 Jurisdiction:

CCE, Mumbai v. Central Cable Pvt. Ltd., 2009 (13) STR 328 (Tri.-Mumbai)

An appeal was filed against the order passed by CCE (Appeals), for consideration of legal aspects.

The Commissioner (Appeals) in his order observed that the Assistant Commissioner had no jurisdiction to issue show-cause notice.

The Revenue contended that Circulars on which reliance was placed by the Commissioner (Appeals) were not in force when the matter was adjudicated by original authority and he was empowered by a Circular to issue show-cause notices.

The Tribunal remanded the matter back to the Commissioner (Appeals) for reconsideration.

3.7 Reimbursements – whether taxable? (Also limitation) :

Rolex Logistics Pvt. Ltd. v. CST, Bangalore, 2009 (13) STR 147 (Tri.-Bang)

The appellant engaged in ‘Management Consultancy Service’ took over operations of two proprietary firms, which were not providing management consultancy services. They were accused of suppression of value of taxable services as regards reimbursements claimed by the firms and evasion of service tax for which demand along with interest and penalty was raised.

The appellant contended that show-cause notice was issued based on the information from balance sheet and other books of accounts and therefore suppression could not be alleged.

The Tribunal observed that service tax liability accounted only towards the amount received and not towards reimbursements.

It was further held that there was no suppression of facts with an intention to evade tax, therefore longer period could not be invoked.

Some of the cases relied upon:
(i) Scott Wilson Kirkpatrick (l) Pvt. Ltd. v. CST, 2007(5) STR 118 (T)
(ii) B.S. Refrigeration Ltd. v. eST, 2006 (4) STR 103(T)
(iii) Glaxo Smithkline Pharmaceuticals Ltd. v. CCE, 2006 (3) STR 711 (Tribunal)

BCAJ Admin

ICAI and its Members

1. Finances of ICAI

Audited Accounts of ICAI for the year ended 31-3-2012 have been recently released at the 63rd Annual Meeting held in February, 2013. The summarised position given below will show that the net worth of ICAI as at 31-3-2012 was Rs. 838.77 crore. (including Earmarked Funds of Rs. 162.86 crore). The Net Surplus as per Income & Expenditure Account for the year ending 31-3-2012 was Rs. 182.61 crore.

4. Our New President and Vice President

On 12-2-2013, Shri Subodh Kumar Agrawal (Kolkatta) is elected as President and Shri K. Raghu (Bangalore) is elected as Vice President of ICAI for the year 2013-14. Our greetings and best wishes to both of them for a successful term of office.

5. EAC Opinion

Accounting for Preliminary and other Pre-operative expenses and Government Grants in Profit and Loss Statement

Facts

A State Government accorded sanction for implementation of the High Speed Rail Link (HSRL) to the International Airport. A Ltd., a wholly owned Government company, was appointed as nodal agency of the State Government for the HSRL project and to play a similar role that it has been playing in the implementation of another International Airport. Further, sanction was also accorded to constitute Special Purpose Vehicle (SPV Ltd.) to implement the project on PPP – BOT basis by inviting Expression of Interest (EOI) and Request for Proposal (RFP). A Ltd. was also authorised to engage the services of another company, B Ltd on assignment basis as project consultants to assist SPV Ltd., in the implementation of this project.

By another Government order, sanction was accorded to release an amount of Rs. 2.50 crore to A Ltd. for utilising the funds to pay consultancy fee to study the impact of City Airport Terminal (CAT) on the traffic and to suggest engineering solution to tackle the traffic problem and project consultancy fee for incorporation of SPV Ltd. and documentation charges/fee for preparation of MOA & AOA of SPV Ltd., Accordingly, A Ltd. incorporated SPV Ltd. on 31st March,2008 with the main objective-to implement HSRL Project to an International Airport under PPP concept. SPV Ltd. initially issued 49,996 shares to A Ltd and 4 shares to nominees of State Government, Thus, it became a subsidiary of A Ltd.

Thereafter, SPV Ltd. prepared its accounts for the period from the date of incorporation to 31st March,2009 i.e. for the first year. It prepared only balance sheet and no profit and loss account or income and expenditure account was prepared as company had not commenced its operations. A note was given that pre-operative/implementation (construction) period expenses till the completion of the project will be capitalised and preliminary expenses would be amortised in five equal installments after commencement of its operation. In the next year i.e. in the financial year 2009/10, the SPV Ltd .prepared its profit and loss account and preliminary expenses and pre-operative expenses were charged including the expenses incurred by A Ltd on behalf of SPV Ltd., in the profit and loss statement.

Query

On these facts, an opinion of EAC was sought, whether the accounting by SPV Ltd. for expenses/ funds which were received by A Ltd. as promoter of SPV Ltd. by preparing the profit and loss account for the financial year 2009/10 is in compliance with the requirements of the Companies Act, 1956 and Accounting Standard issued by ICAI and if not what is the appropriate accounting treatment?

Opinion

The Committee after considering AS-26 was of the view that cost of starting up an activity that includes incorporation expenses, including preliminary expenses incurred by A Ltd. towards incorporation of SPV Ltd., in bringing an enterprise into existence as a separate legal entity should be expensed as no intangible asset or other asset is acquired or created that can be recognised, unless such expenditure is required to be capitalised as part of the cost of a fixed asset as per AS-10 in the books of SPV Ltd.

Further, the Committee was of the view that the funds received from the Government meet the definition of “government grants” as per provisions of AS-12 and should be recognised accordingly. Besides, the Committee was of the view that funds received were both in the nature of grants related to revenue and of the nature of promoters’ contribution. Hence, the funds received for meeting the envisaged obligation of SPV Ltd. should be treated as income to match against the expenses incurred for the period. The funds in the nature of “promoters’ contribution” should be taken to capital reserve as per the requirements of AS 12 and amount received from the Government against the issue of the shares be recognised as share capital.

As regards preparation of profit and loss account before commencement of commercial operations by the SVP Ltd., the Committee noted that as per requirement of section 210 of the Companies Act, 1956, a profit and loss account has to be prepared for each annual general meeting from the date of incorporation of SPV Ltd. Same view has been taken in the circular no. 2/17/64-ER dated 29th January, 1964 issued by the Department of Company Affairs. Hence, the preliminary and other expenses incurred should be expensed in the year of their incurrence. Similarly, the grants which were earned by SPV Ltd. during the period should be recognised as per requirements of AS 12. Therefore, the Committee has taken the view that the profit and loss account should be prepared by SPV Ltd. from the date of incorporation, even before commercial commencement of the project.

Hence, the accounting by SPV. Ltd for expenses/ funds received by A Ltd. while preparing the profit and loss account of the financial year 2009/10 was not correct and was not in compliance with AS 10, AS 26 and AS 12. The expenses/funds received should be accounted for in the profit and loss account of SPV Ltd. of the respective years in which these are incurred/earned.

[Pl. Refer Page nos. 1246 to 1253 of C. A. Journal – February, 2013]

6. ICAI News
(Note : Page Nos. given below are from C.A. Journal for February, 2013)

(i) Council Elections – 2013
Results of Council Elections held in December, 2012 were declared on 7-1-2013. 22nd Council was constituted effective from 12-2-2013. Out of 1,92,641 voters, 90,228 voters (46.83%) exercised their franchise. Region wise voting percentage was Western 49.81%, Southern 44.07%, Eastern 42.23%, Central 46.14% and Northern 47.45%. (Page – 1171)

(ii) November, 2012, Final Examination Result.
(a) Both groups – 12.97%, (b) Group I – 27.30%, (c) Group II – 21.85%
Rank –   1 Ms. Prema Jaykumar (Mumbai) 75.88%
Rank –   2 Mr. Ashokkumar Indiana (Rajamahendra varam) 75.25%
Rank –   3 Mr. N. Gnansampath (Coimbatore) 74.13% (P. 1173)

(iii) Members of New Central and Regional Councils
Names of New Central Council and Regional Council members and given on pages 1184/1185.

(iv) New Publications
ICAI has published a book on “Commonly Used Terms in Public Finance & Government Accounting”.
(P. 1326)

(v) ICAI Awards – 2012
ICAI has declared the following Awards to Western Region for 2012
(a) Best Regional Council – WIRC
(b) Best Students Association – Western India
(c) Best Branch (Large Branch) – Baroda, Nagpur (WIRC) and Ludhiana (NIRC)
(d) Best Branch (Medium Branch) – Aurangabad (WIRC) and Salem (SIAC)

BCAJ Admin

From the President

Dear Members,

By the time this issue reaches you, the Finance Bill, 2013 would be out and everyone would be engrossed in discussing and evaluating the implications and changes brought in the Bill, and attending Lectures and Seminars by the experts.

The most important event post-Budget, that almost all professionals look up to, is the talk of Mr. S. E. Dastur on Direct Tax Provisions of the Finance Bill. Year after Year, Mr Dastur from the BCAS platform, addresses the crowd of almost 3500 to 4000 at Yogi Sabhagruha, Dadar (E), and many more watching a live webcast. This year’s talk of Mr Dastur would make a history in BCAS books, as it would be his 25th talk for BCAS. It’s a treat to the mind and ear, to hear Mr Dastur analysing the budget provisions . The members and others in the profession who missed his live talk can watch the same on BCAS Web TV.

The other stalwart in the field of Indirect Taxation, Mr. Vikram Nankani, will address on Indirect Tax Provisions of the Finance Bill, 2013 on 13th of March at IMC.

While you make your analysis and study of the Finance Bill, 2013, we too at BCAS start gearing up and work for it’s most prestigious and acclaimed Publication, BCAS Referencer 2013-2014, which is in its 51st year and would be released in June 2013. At this juncture, let me share that the BCAS Referencer 2012-2013 App is now available for download both on Android and Apple store.

After the presentation of the Budget, once the anxiety is over, every section of the Society talks about the impact of the Budget, who are the beneficiaries and who are the losers. But all discussion ultimately ends with the most sensitive issue and that is Inflation.

Let me illustrate the same with recent reports after the presentation of the Rail Budget on 26th February. Railway Minister Mr Pawan Kumar Bansal has tried to take a small step by linking freight tariffs to oil prices, to make railways viable.

But, India Inc has expressed concern over the hike in freight rates, which they feel will add to the gloom in an already depressed business environment which may lead to higher inflation. Also, the issues surrounding government spending, and the massive deficit, always brings the topic of inflation to the forefront. The subject of inflation has remained an emotionally charged topic of debate over the last several years.

But I for one always pose before myself and struggle to find answers to a few Questions, like:

What is Inflation, and why is Inflation so widely feared ?
How does Inflation impact one’s life ?
If it’s a major concern, why hasn’t it been tackled systematically ?
Why the Government has failed to curb Inflation ?
Why Reported Inflation seems different than Reality ?
Is Inflation the Endless Farce ?

I would like you all to ponder over the above Questions, in the light of the following thoughts:

We all, while talking about money and the price of goods and services, use the word “inflation” quite regularly. But honestly speaking, few know what it actually means, what it measures and how it is calculated.

We often hear an older person talk about how different things were 40-50 years ago. It only costed five rupees to see a movie. A house only costed about Rs. 100-250 per sq. ft. In the intervening years, prices have risen, sometimes drastically. Seeing a movie in the theatre now costs about Rs. 200-350; and a house costs about Rs 10,000-50,000. From 1973 to now, an Indian pays 48 times for one litre of fuel. That’s inflation.

Many economists argue that a low steady rate of Inflation as opposed to zero or negative rate is good for the economy. They advocate that “Inflation is the grease on the wheels of the economy”.

On the other hand, the common man is least interested in knowing either the WPI/CPI or the calculations thereof. What he wants is a reasonable price and that he is not made to pay a higher price for the same item every next time he goes to market.

What common men or consumers don’t realise is that once a price increases, any future drop in inflation doesn’t have an effect on the earlier price. It just means that we will pay slightly less on the increase going forward.

For me, inflation is one of the catch phrases that’s heard all the time and is an inevitable threat to our material wellbeing.

Considering the present scenario and the political instability in our country, and the fear of future inflations hanging in the air, it would not be wrong to say that the future Law of Inflation would be : Whatever goes up will go up more & more.

I would end with a Quote by Milton Friedman:

“Inflation is Taxation without Legislation”.

With Warm Regards,
Yours truly,
Deepak R. Shah

levitra

BCAJ Admin

PART B: RTI Act, 2005

National Campaign for people’s Right to Information (NCPRI) held 4th RTI National Convention for four days (15th February to 18th February) at Hyderabad.

NCPRI was formed in 1996 and functions as an AOP till today. Prominent Individuals running the same are Ms. Aruna Roy, Mr. Nikhil Dey, Ms. Anjali Bharadwaj and others. NCPRI has played a key role in drafting the Central RTI Act of 2005. It holds convention every two years. On 15th and 16th February, the subjects of discussion were the future course of NCPRI-structure, decision making process, role of NCPRI etc. It then produced a summary, part of it reads:

Objectives

The National Campaign for people’s Right to Information (NCPRI) seeks to empower the people and to deepen democracy, through promoting people’s right to information. By using this right, it seeks to fight corruption and social apathy, to make governments and other institutions and agencies having an impact on public welfare, more humane and accountable to the people and to promote efficiency and frugality.

Values

The NCPRI is committed to support participatory just, secular and humane democracy.

Methods and Activities

The NCPRI endeavours to constantly engage and interact with the state and with other institutions and agencies. It campaigns for the enactment and use of right to information law that is effective and accessible to all. It also supports people’s efforts at developing the ability and motivation to use the right to information for addressing individual and social problems. It works at disseminating the RTI law and encourages and supports the development of materials related to transparency and governance, the raising of awareness about the fundamental value of information, the conduct of research and the setting up of information clearing houses. It seeks to further the cause of transparency by adopting other direct and indirect methods, including the filing of information requests, the fighting of legal cases and the holding of public hearing.

It also decided on its structure and also to democratise the same, details will be posted on www. bcasonline.org and www.pcgt.org.

On 17th February, delegates were divided in to 15 groups to discuss 15 topics for its activities and to draft Hyderabad Declaration on The Right to Information (Pattern similar to BCAS-RRC)

On 18th February, the final Hyderabad Declaration of the RTI was adopted at a public meeting which was also addressed by Mr. Vajahat Habbibullah (the first Central Chief Information Commissioner)

On the afternoon of 18th February, there was a visit to a NGO specialising on social audit to understand the process of social audit, a subject of great importance to build accountability and contain corruption.
It was a rewarding and satisfactory convention.

levitra

BCAJ Admin

PART D: Good Governance

Excerpts from the article of Makarand Paranjape:

Makarand Paranjape reported in Sunday Times of 3-2-2013:

“From this brief overview of the facts it is clear that the republic is not as intolerant as it is badly governed. This is a crisis not of tolerance but of governance. The political establishment had failed to uphold the Constitution and the rights that are guaranteed under it. Laws meant to safeguard the weak are often manipulated or twisted to bully or browbeat those who dare to speak inconvenient truths. The powers vacated or abused by an ineffective executive are only partially compensated for by an interventionist judiciary, an over-active press, or a popular uprising like Anna Hazare’s.”

Excerpts from the article of William Bissel reported in Sunday Times of 3-2-2013

“As Thomas Kuhn has said in The Structure of Scientific Revolutions, we are facing a challenge that is the result of paradigm shift where the evidence of the failure of our concepts of governance stare us in the face. And yet, in the avalanche of evidence that speaks of this failure, the system remains paralysed applying praradigms of governance that will no longer suffice.

So, how does the class of 2014 begin to put in place the foundations of a new system of governance?

I believe that such a system will have to be built on a new paradigm of measuring overall wellbeing using tools that allow government to create a holistic view of what the elements of wellbeing are: access to security (specially for women), clean air, safe drinking water, reliable sewage facilities, access to a good nutrition for all, schools that teach, colleges that skill.”

levitra

BCAJ Admin

PART C: Information on & Around

CBI goes to the Delhi High Court:

Vide provisions of section 24, RTI Act does not apply to the intelligence and security organisations specified in the Second Schedule.

The Central Board of Investigation (CBI) has been added in the Second Schedule to the RTI Act w.e.f. 29-6-2011.

The matter was taken to the Madras High Court pleading that the CBI is not the intelligence and security organisation. But, it was lost.

Mr. C.J. Karira made an application to the CBI asking it to furnish information relating to the status of sanction for prosecution against government officials facing allegations of corruption between 2007 to 2011. Same was denied. He filed an appeal to CIC. He pointed out that the information which the CBI declined to reveal on his RTI plea has been disclosed by the ministry of personnel in a number of responses to Parliament members. Hence, it is disclosable under Proviso to s/s. 1 to section 24.

The 1st Proviso to section 24 reads as under: Provided that the information pertaining to the allegations of corruption and human rights violations shall not be excluded under this sub-section.

The Commission in its decision directed the CBI to disclose the status of sanction for prosecution against government officials facing allegations of corruption between 2007 to 2011.

The CBI has now approached the Delhi High Court seeking exemption under the RTI Act from disclosing information held by it on allegations of corruption. The Delhi High Court has stayed the CIC Order and has fixed the matter on 3rd April for further hearing.

Mumbai Police

On an average, 120 Mumbai police personnel have died while on duty every year since 2002, with 98% of them succumbing to various illnesses, including cardiac arrest, according to an RTI reply. Other causes of death included illnesses such as diabetes, hypertension and heart-related problems, among others.

“Due to long duty hours, a policemen cannot plan their days. They don’t get time to exercise. Moreover, when policemen are deployed at any place, they have to eat the food available there, which may be unhealthy,” Additional Commissioner of police (Crime) Niket Kaushik said.

Vice–Chancellor of Mumbai University:

A query filed by Mr. Anil Galgali an RTI activist under the RTI Act, revealed that the Mumbai University (MU) hired senior advocates to fight the cases challenging the VC’s job. The university had hired senior advocates, Rafique A. Dada – known for fighting tricky cases – Naushad Engineer and Sagar Talekar.

MU’s finance and accounts PIO A. R. Jadhav said the university had paid Rs. 4,10,900 to the three lawyers. MU legal adviser Ajit Karwande received a letter from advocate R. A. Rodrigus on 11th July, 2011, with bills that needed to be settled: professional charges of Dada (Rs. 3,30,900), Engineer (Rs. 45,000) and Talekar (Rs. 35,000).

Irrelevant Information:

Rejecting an RTI application filed by a Kandivali resident seeking information of the last 10 years on the appointment, transfer and retirement of Government employees in Maharashtra, Ratnakar Gaikwad (Chief SIC) wrote in the order:

“Applicants should not ask for detailed and irrelevant information as public information officers (PIOs), besides performing their statutory duties, are also engaged in the task of providing information to the people. In such circumstances, it would be appropriate if such information is sought which would bring in transparency and accountability in administration, halt corruption and is in public interest.”

levitra

BCAJ Admin

Lecture Meeting

Risk & Rewards of Practice – A Guide for New and Young CAs in Practice, 23rd January 2013, at the Indian Merchants’ ChamberMr. Nilesh S. Vikamsey, Chartered Accountant, presented an informative analysis of Risks & Rewards of Practice and covered the following areas:

• Present scenario of CAs in practice and in the industry along with relative advantages and disadvantages

• Traditional and emerging areas of practice

• Major challenges in practice: Economic, Regulatory, Technological, Human Resources and Personal

• Strategies and thought process for practice: specialisation, positioning, right sizing,

• Problems of remuneration/fees and how to overcome the same.

• Clients’ rating/profiling

• Requisites of successful practice

• Growth strategies through networking, merger and demerger, practice in corporate form.

The audience included many young and newly qualified Chartered Accountants who benefitted tremendously. The webcast of the meeting is made available on BCAS Web TV to the subscribers.

Future without Fear, 11the February 2013, at the Rama Watumall Auditorium, K.C College under the auspices of Amita Memorial Trust

At this 17th Lecture Meeting organised under the auspices of Amita Memorial Trust jointly with the Chamber of Tax Consultants, Sister Bramha Kumari Shivani addressed the overflowing audience about why and how we should not fear about future and how to better equip ourselves to face the future without fear by doing good deeds.

Noted film actor Mr. Suresh Oberoi also addressed the audience and narrated his own life transforming experience. Shri Pradeep Shah welcomed the learned speaker and refreshed his daughter Amita’s memories. Ms. Nandita Parekh expressed a very well deserved vote of thanks and heartfelt gratitude to Sister Shivani. The webcast of the meeting is made available free on BCAS Web TV for everyone.

Recent Developments in SEBI Regulations, 6th February 2013, at the Indian Merchants’ Chambers

Mr. Somasekhar Sundareshan, Advocate, presented a masterly analysis of recent developments in SEBI Regulations such as draft Scheme of Arrangement involving listed company to require SEBI’s approval, investment by the Employee Welfare Trusts, SEBI’s new reporting requirement to monitor audit qualifications and revised consent settlement norms among others. The webcast of the meeting is made available on BCAS Web TV for subscribers.

Other Programmes

Seminar on Transfer Pricing, 19th January 2013, at the Indian Merchants’ Chamber

The International Taxation Committee organised this Seminar where the following learned faculties explained various aspects of transfer pricing specifically applicable to domestic transaction: The seminar elicited response from over 200 participants, both from the Industry & the Profession.

Seminar on Certification under the Income tax Act, 1961, 25th January 2013, at the Indian Merchants’ Chamber

This Seminar organised by the Taxation Committee, was attended by nearly 150 participants where the following speakers shared their knowledge on the topics allotted: The participants gained immensely from the wealth of knowledge and experience shared by the learned faculties.

Workshop on Risk Management, 7th February 2013, at Hotel Orchid, Mumbai

The Accounting & Auditing Committee organised this workshop where the following learned faculty explained Basics of Risk Management and Challenges in Implementing Risk Management, with focus on small and medium sized firms implementing risk management activities amongst their clients followed by a Panel Discussion on Risk Management in Indian context:

• Dr. Dale F. Cooper, Member of the Risk Management Committee of Council of the University of New South Wales

• Mr. Ravindra Rao, Chartered Accountant

• Mr. Huzefa Unwalla, Chartered Accountant

• Mr. Deepjee Singhal, Chartered Accountant

The participants gained immensely from the knowledge and experience shared by the learned faculties.

Seminar on the Companies Bill, 2012, 30th January 2013, at the Indian Merchants’ Chamber

The Accounting and Auditing Committee organised this seminar where the following learned faculties dealt with the topics allotted to them:

The participants benefitted immensely from the detailed analysis of various provisions of the new Companies Bill, 2012 by the learned faculties.

Real Estate Summit, 1st and 2nd February 2013, at J. W. Marriott, Mumbai

The BCAS jointly with the IMC organised unique industry specific Real Estate Summit covering various aspects of Real Estate Business and Investment covering following topics addressed by learned speakers:

A publication titled “Real Estate Laws” authored by Naushad Panjwani, Chartered Accountant and Ameet Hariani, Advocate, was also released at the Summit.

The content and coverage of topics and the overall arrangement at the Summit were appreciated by the participants. The event also received coverage by leading newspapers and media.

Workshop on ‘Personal Victory’ for CA Students, 10th February 2013, at the Society’s Office

The Human Resources Committee jointly with Amita Memorial Trust organised this workshop for CA Students where Mr. M. K. Ramanujam explained the following concepts:

• Goal setting

• Understanding responsibilities

• Working within the circle of influence, i.e. qualities, abilities and capacities

• Time management

The Student participants found the training at this workshop as a life changing experience. 11th Leadership Training Camp, 8th and 9th February 2013, at the Rambhau Mhalgi Prabodhini, Bhayander

The Human Resources Committee had organised this Residential camp which was based on the theme ‘Living in Harmony’. The faculty, Mr. M. K. Ramanujam shared his experience and knowledge and related the same to the concepts of:

• Flourishing

• Living

• Serving

• Understanding meaning of life

• Accomplishing and maintaining positive relations

The objective of the camp was well achieved as it helped the participants to improve their ability to bring more joy and presence to their daily lives.

Third Intensive Study Course on Transfer Pricing, 9th February 2013 onwards, at the Indian Merchants’ Chamber

The course organised by the International Taxation Committee of the Society was inaugurated by the Chairman of the Committee, Mr. Kishor Karia, Chartered Accountant. Vice President, Mr. Naushad Panjwani, Chartered Accountant welcomed the 111 participants in his address and congratulated them for having enrolled for this course spread over 10 Saturdays. Mr. T.P. Ostwal, Chartered Accountant delivered the first session covering an Overview of Transfer Pricing.

2nd Advance Computer Training Program for Senior Chartered Accountants, 22nd January 2013 onwards, at the HR College

The course spread over 12 days with 35 hours of training, jointly organised with HR College of Commerce & Economics, was inaugurated by the Chairman of the Infotech & 4i Committee, Mr. Ameet Patel, Chartered Accountant. President of the Society, Mr. Deepak Shah, Chartered Accountant welcomed the participants and explained the objective of the course. Professor Ruzbeh Raja, delivered the first session covering an Overview on Excel to the participants.

BCAJ Admin

Letters

Sir,
It was a genuine privilege to read January 2012 edition of BCA Journal. Your sincere and honest efforts to provide us with updated knowledge along with some of the best articles, stories, etc. are really worth appreciating.

Especially I liked the stories compiled by CA Raman Jokhakar. Those stories are really helpful in our professional and social life as well. My special thanks to you Raman Sir.

Thanks and regards.

— Vaibhav Mungashe,
C. A. Student, Pune.

Sir,
Re: Delay in introduction of Safe Harbour Rules The Finance Minister introduced section 92CB by the Finance (No. 2) Act, 2009 w.e.f. 1-4-2009, empowering the Board to make Safe Harbour Rules for determination of arm’s-length price. ‘Safe Harbour’ means Circumstances in which Income-tax authorities will accept the transfer price declared by the assessee. The enabling section 92CB was introduced after persistent demand by the taxpayers, particularly by the foreign companies.

One is, therefore, surprised that even after a lapse of three years, the relevant rules have not been notified. If this is not a sign of policy paralysis, then what constitutes policy paralysis? Of course, our ruling politicians and bureaucrats are allergic to use of the term and recently the PM openly chided the business community for using the same.

Further, though the transfer pricing provisions were introduced w.e.f. 1-4-2002, the CBDT has not provided enough guidelines about its implementation even after ten years. In western countries, such as Australia, New Zealand, Canada, UK, USA etc., their tax departments have put up hundreds of pages of guidelines for the taxpayers. Absence thereof in India is puzzling, to say the least; perhaps the Revenue Officers are either themselves not clear about the implications of the Law which they are implementing or they do not want to give up their discretionary powers!!! It is high time that the Tax Department provides clear guidelines on implementation of Transfer Pricing Law and formulate Safe Harbour Rules are introduced. Indian Transfer Pricing Officers are one of the most aggressive in the world, leading to mind boggling adjustments and litigation which helps nobody (except legal and tax professionals) and is driving away the Foreign Direct Investment though the high officials won’t accept the same.

—T. K. Singhal
Chartered Accountant

levitra

BCAJ Admin

From published accounts

Section B:
• Reclassification of loans between current and non-current
• Accounting of interest on certain borrowings on cash basis as per Court order
• Adoption of hedge accounting principles in respect of commodity derivative contracts
• Exceptional Items

Essar Oil Ltd (31-3-2013)

From Notes to Financial Statements

Notes below Schedule 7: Long Term Borrowings: The classification of loans between current liabilities and non-current liabilities continues based on repayment schedule under respective agreements as no loans have been recalled due to noncompliance of conditions under any of the loan agreements. The non-compliance of conditions under the loan agreements are primarily arising out of the order of the Hon’ble Supreme Court dated 17th January, 2012 (refer note 36). This is in accordance with the guidance issued by the Institute of Chartered Accountants of India on Revised Schedule VI to the Companies Act, 1956.

Repayment and other terms:

a) Secured redeemable non–convertible debentures (‘NCDs’) of Rs. 105/- each consists of:

13,868,050 (Previous year 16,918.250) – 12.50% NCDs of Rs. 105/- each amounting to Rs. 145.61 crore (Previous year Rs. 177.64 crore).

7,00,000 (Previous year 7,00,000) – 12.50% NCDs, of Rs. 100/- each on private placement basis partly paid up at Rs. 93.86 per debenture amounting to Rs. 6.57 crore (Previous year Rs. 6.57 crore).

During the year, the Company refinanced its Rupee borrowings with one of its existing lenders into an External Commercial Borrowing (ECB). This resulted in conversion of debentures having face value of Rs. 32.03 crore also into the ECD loan. Further, as per the common Loan Agreement (‘the CLA’) entered with lenders post exit from the Corporate Debt Restructuring (CDR) Scheme, the Company has agreed to pay interest on a monthly/quarterly basis, on debentures held by the erstwhile CDR lenders at a floating rate linked to the base rate of the respective bank prevailing on 8th August, 2012, with effect from 1st January, 2012, resulting in the interest rates ranging from 12.32% p.a. to 12.75% p.a. The Company is also in the process of sending offer letters to the remaining debentures holders (i.e., other than lenders) given them, inter alia, an option for prepayment of debentures along with accumulated interest in full. The principal amount of debentures is otherwise payable from December 2014 to June 2018 and accumulated interest from December 2014 to March 2027, with an option to prepay certain portion of interest at a discounted rate. As an alternative, these debenture holders can opt for revising the terms and conditions applicable to debentures in line with the terms contained in the CLA.

The Hon’ble High Court of Gujarat has, in response to the Company’s petition, ruled vide its orders dated 4th August, 2006 and 11th August, 2006 that the interest on certain categories of debentures should be accounted on cash basis. In accordance with the said petition/ order, funded/accrued interest liabilities amounting to Rs. 417.72 crore (Previous year Rs. 428.24 crore) as at 31st March, 2013 have not been accounted for. This amount carries interest rate ranging from fixed rate of 5% to a floating rate of 12.75% and is repayable from December 2014 to March 2027.

c) During the year, the Company exited Corporate Debt Restructuring Scheme resulting in termination of the MRA dated 17th December, 2004 and entered into a CLA dated 25th March, 2013 with the lenders for the loan facilities which were hitherto being governed by the MRA. The MRA gave an option, subject to consent of lenders, to the Company to prepay certain funded interest loans (the FS loans) of Rs. 2,471.63 crore on or before 24th April, 2012 without interest. The FS loan has not been prepaid before 24th April, 2012 and is now governed by the CLA.

In order to give accounting effect to reflect substance of the transaction, the FS loan was, since inception, measured by the Company in accordance with the principles of IAS 39, Financial Instruments, Recognition and Measurement, in the absence of specific guidance in Indian GAAP to cover the specific situation. In continuance of the above said principle and applying the principle of Accounting Standard AS 30, Financial Instruments, Recognition and Measurement, the FS loan has, upon signing of the CLA, been remeasured since inception, considering present value of cash flows inclusive of interest. Accordingly, the gross liability of Rs. 3,163.84 crore of the FS loans and funded interest thereon as at 31st March, 2013 (comprising of Rs. 2,126.36 crore to the banks and Rs. 1,037.48 crore to the financial institutions) have been measured at Rs. 1,833.84 crore (comprising of Rs. 1,234.34 crore to the banks and Rs. 599.50 crore to the financial institutions). Consequently, borrowing cost of Rs. 536.71 crore attributable to construction of the Refinery Project based on such remeasurement has been capitalised as part of cost of Fixed Assets and balance borrowing cost of Rs. 110.94 crore has been recognised in the statement of profit and loss.

The FS Loans of Rs. 2,471.63 crore is repayable in various installments from March 2021 to March 2026 and the Funded Interest thereon as at 31st March, 2013 amounting to Rs. 692.19 crore is repayable in 40 equal quarterly installments beginning 30th June, 2013.

A funded interest loan of Rs. 206.88 crore (previous year Rs. 206.88 crore) is payable in a single bullet payment in 2031 and is continued to be measured in accordance with the aforementioned principles at Rs. 34.95 crore (Previous year Rs. 31.67 crore).

Note below ‘Other Current / Non Current Assets’

Rs. 2,177.82 crore receivable from Essar House Limited (EHL) being the amount paid under the defeasment agreement of the sales tax liability covered by the scheme (refer note 36). The Company has agreed to recover these dues in eight equal quarterly installments along with interest, coinciding with the installment facility made available by the Hon’ble Supreme Court to the Company for repayment of the Gujarat Sales Tax dues. To secure this amount further, the Company is in the process of obtaining an additional guarantee from the parent company of EHL.

Note below ‘Revenue from Operations’

During the previous year, the Company deferred payment of sales tax/VAT liability amounting to Rs. 1,507.01 crore for the period 1st April, 2011 to 31st December, 2011 and defeased the same to a related party at its present value amounting to Rs. 528.42 crore. Sales tax/VAT amounting to Rs. 1,387.36 crore shown above as deduction from ‘Revenue from operations (gross)’ includes the defeased value of sales tax/Vat liability of Rs. 582.42 crore as per the defeasance agreement pursuant to which the assignee has undertaken to discharge the sales tax/VAT liability on the due dates. Pursuant to the Supreme Court Order dated 17th January, 2012, the Company subsequently reversed the entire amount of income recognised as an exceptional item (refer note 36).

Note on Hedge Accounting

During the year, the Company adopted hedge accounting principles of AS 30 – Financial Instruments and Derivatives for accounting of certain commodity hedges. Accordingly, Rs. 104.90 crore (gain) has been carried over to cash flow hedge reserve as of 31st March, 2013 pertaining to highly probable forecast of sales proceeds. If hedge accounting principles of AS 30 had not been adopted for the year ended 31st March, 2013, sales would have been higher by Rs. 18.48 crore, consumption of raw materials would have been lower by Rs. 5.69 crore, profit after tax would have been higher by Rs. 24.17 crore and receivables would have been lower by Rs. 80.73 crore.

The Hon’ble Supreme Court of India had vide its order dated 17th January, 2012 set aside the order of the Hon’ble High Court of Gujarat dated 22nd April, 2008 which had earlier confirmed the Company’s eligibility to the Sales tax incentive Scheme (‘the scheme’) and accordingly the Company had reversed the net defeased income (net) of Rs. 778.25 crore recognised during 1st April, 2011 to 31st December, 2011 as exceptional items during the financial year 2011-12. Rs. 83.39 crore represents interest payable by the company on sales tax liability arising out of the Supreme Court order dated 13th September, 2012.

From Auditor’s Report
(a) Note 7(ii)(c) to the financial statements detailing the recognition and measurement of the borrowings by a Common Loan Agreement which were hitherto covered by the Master Restructuring Agreement as per the accounting policy consistently followed by the Company; and Note 34 to the financial statements detailing the adoption of hedge accounting
principles in respect of commodity derivative contracts, as set out in Accounting Standards (AS) 30, Financial instruments: Recognition and Measurement, in absence of specific guidance under the Accounting Standards referred to in s/s. (3C) of section 211 of the Act.

(b) Note 7(ii)(c) to the financial statements describing the fact about accounting of interest on certain categories of debentures on a cash basis as per the Court order.

(c) Note 19 [footnote (ii)] to the financial statement regarding receivable of Rs. 2, 177.82 crore from Essar House Limited and the management plans of securing the dues as explained therein.

BCAJ Admin

Direct Taxes

Explanatory Notes to the Provisions of the Finance Act, 2013 – CIRCULAR No. 3/2014 [F.NO.142/24/2013-TPL], dated 24-01-2014

The CBDT has issued a press release dated 30-01-2014 to keep in abeyance the change in the procedure for PAN allotment, which was introduced vide Circular No. 11 dated 16-01-2014. In the meantime, the old procedure of PAN application and allotment shall continue.

Relaxation of time limit for filing ITR-V – CIRCULAR No. 4/2014 [F.NO.225/198/2013-ITA. II], dated 10-02-2014

The due date for filing ITR-V form for Assessment years 2009-10, 2010-11 and 2011-12 for returns e-filed within the time allowed u/s. 139 and having refund claims is extended upto 31-03-2014

Clarification regarding disallowance of expenses u/s. 14A of the Act – CIRCULAR No. 5/2014 [F.NO.225/182/2013-ITA. II], dated 11-02-2014

CBDT has clarified that disallowance u/s. 14A shall be attracted in even if the assessee has not earned any exempt income in that particular year.

Clarification regarding scope of additional income tax on distributed income u/s. 115R of the Act – CIRCULAR No. 6/2014 [F.NO.225/182/2013-ITA. II], dated 11-02-2014

CBDT has clarified that receipts by way of redemption/ repurchase of mutual fund units of allotment of bonus units are not subject to levy of additional income tax u/s. 115R (2) of the Act.

Finance Bill 2014, introduced in the Lok Sabha on 17-02-2014

levitra

BCAJ Admin

Light elements

KYC — know your customer is the buzzword in banking sector and elsewhere. In good old days we often read the quote ‘Customer is God’ by Mahatma Gandhi. Under the changed circumstances this quote seems to be redundant with the introduction of ‘Know your customer’ formality. It makes the customer feel that he is no more ‘God’ as per Bapuji’s view. Maybe now the customer is viewed as a devil or a suspect. This is what my friend Herambha Shastri once remarked. However he did not stop there, he encroached into idiosyncrasies of our ‘clients’ giving us bread (applicable to small firms), butter (applicable to medium-size firms) and cheese (applicable to Big Four).

“My dear friend, we also need to do KYC. We have clients of different hues. Clients just flirting with law, law-abiding clients, paying clients, non-paying clients, organised clients, unorganised clients, close relatives as clients, seasonal clients, one-time clients, perpetual clients, local clients, outstation clients, international (MNC) clients, etc. Well, we deal with them day and night! Are you surprised? Check your mobile call log — received calls — the last call at 11.30 p.m. What a generosity we show to them!

At times it so happens that you are attending a funeral of a near and dear one and you receive call from your client. Either to impress or out of compulsion, you answer the call. Despite informing the client that you are at crematorium, he continues: “Sir, first may the soul rest in peace. (Great etiquette indeed!) Please, one second Sir. Can I invest my retirement proceeds in the name of my wife (as if she were his Mumtaz) in a fixed deposit, right now I am in the bank. What should I do? Tomorrow it’s a bank holiday.” You are stumped.

Sometimes you are at a traffic signal and your mobile starts ringing, you identify the person calling you. Oh! A new client or a star client. The moment you answer the call you are spotted by the traffic police hiding in the corner. And your client on the line is asking you how to avoid disallowance u/s.40(A)(3) for cash payment.

My dear friends, if you are in holiday mood and forget to switch off your mobile, clients are bound to play spoil sport. Your family members get irritated. And obviously some urgent matter comes up and you cut short your holiday.

You can’t avoid meeting relatives at family functions. The moment they come to know that you are a C.A., distant relatives become close relatives. Being close relatives they don’t spare you, they feel that you are available 24×7 (note that this is also true with other non-relative clients). Most importantly, you are advising them for free. At times, out of ‘Aatithi Devo Bhav’ ethos you are forced to ask them to join for breakfast, lunch or dinner or a cup of tea. Because consultation takes place at your residence.

Mind you, most of the clients are playing the ‘hideand- seek’ game with you as far as their financial transactions are concerned. When you make enquiries (obviously in client’s interest) in the process of reconciling his investments and income, initially he is very tentative, the moment you talk about ‘penalties and prosecution’ provisions under the Income-tax Act, he reveals something of your interest. You have to play the role of “devil’s advocate” constantly. Devil means the Income Tax officer. Keep in mind, at times your client will not hesitate to share with you his secret love affairs, but not his financial affairs.

Your clients are always ahead you! I am making this statement with full consciousness and experience. Situation number one: They do everything they have in mind to reap the ‘business’ opportunity and ask us to cram it into the ‘legal frame’. So what is left for you is ‘window dressing’. They have their own definition of ‘commercial expediency’. They happen to be at point of no return and you don’t want to lose your client, you keep scratching your head.

Situation number two: They are always influenced by print, electronic media TV/Internet, lectures, seminars, and their personal network. They pose ‘tax planning’ questions to us based on the so-called ‘tax expertise’ they gather from their sources, particularly TV programmes dealing with ‘how to manage your tax matters’ with on-the-spot question — answer segment where eminent tax experts air their views. You get floored by their queries.

So is the case with public awareness campaign by the Income-tax Department, particularly announcement of advance tax due dates. For example, once the 15th June advance tax due date for corporate assessees popped up on the TV screen non-corporate assessees including salaried employees make it a point to confirm from the horse’s mouth meaning ‘you’, whether they are liable to pay any advance tax. The reason for this anxiety of your client, the advertisement comes with a string “if you fail to pay advance tax you attract penalty and prosecution”. Poor taxpayers.

Sometimes your client tells you how his friend or travel acquaintance (from his personal network) has claimed a particular deduction or exemption. You have no choice but to follow the wishes of your client.

Be aware once you start endorsing your client’s views you may feel that you are just rendering ‘courier services’.

Some clients are ‘dashing and daredevil’ clients, they have their own connections with the Incometax Department right from the peon to the Chief Commissioner. So they ask you to do as they say, rest they undertake to ‘manage’.

This is how your clients are always ahead of you. But when you demand certain information, explanations, record and documents he eschews it and air myriad excuses till the time you fire him.

‘Second opinion’ is another fad in the taxpayers community purportedly as an abundant precaution. This opinion ‘poll’ travels from one expert to another till the opinion is to client’s satisfaction. This happens because you give a ‘devil’s opinion’ — opinion against the assessee’s opinion. Some-times the client has it before he approaches you, and then he shrewdly corners you or tests your knowledge on the given issue. But I tell you it is always safe to have ‘second opinion’ to calm down the suspicious clients. This second opinion is also sought when the client invents a new scheme of ‘tax planning’.

I would end my KYC analysis with two more issues.

First, clients at large think tax compliances, particularly dues dates are for you to bother. So you have sleepless nights, blood pressure (high or low) diabetes, etc.

Second, most of the clients are forgetful about your professional charges, but are very particular about getting the work done. Professional charges are always ‘past’ overdue. Either the clients find the fees too high or they are facing financial crunch in the business. In fact, we extend maximum credit period on the earth. Unfortunately, unlike physical goods we cannot repossess services rendered. If you insist for payment of fees/charges they instantly switch over to another professional. So you have to be very patient.

So my dear friend, Do you Know Your Client?

levitra

BCAJ Admin

ICAI and its members

1. Disciplinary cases

It is reported that the Disciplinary Committee has given its decision and awarded punishment in the cases of Shri Srinivas Talluri, partner of M/s. Price-Waterhouse & Co., and Shri Srinivas Vadlamani, the former CFO of Satyam Computers. It is also reported that the Committee has held Shri Srinivas Talluri guilty of gross negligence in the performance of his duties as auditor and his membership is cancelled for life and a penalty of Rs.5 lac is imposed. Similarly, in the case of Shri Srinivas Vadlamani the Committee has barred him from attesting financial statements for life and also levied a penalty of Rs.5 lac.

2. EAC Opinion Accounting treatment of success fee paid to the financial advisors

Facts
A government company registered under the Companies Act 1956, is a wholly-owned subsidiary of listed government company. The shares of the company are not listed with any stock exchange. The company is engaged in activities relating to exploration and production of oil and gas. The company is holding participating interest (PI) in various oil and gas blocks. The company along with another company ‘V’ has acquired company ‘A’ in joint venture. Company ‘B’ is 100% subsidiary of company ‘A’, which holds the PI in oil and gas blocks in Brazil.

The company appointed financial advisors to carry out: (i) financial due diligence, (ii) develop a detailed financial model and other methodologies to determine the transaction value, (iii) analyse various risks associated with the projects, (iv) valuation of company/project, (v) assisting in appointment of technical, legal and tax consultants, (vi) listing out various financial options available to the company, and (vii) preparing the bidding strategy to acquire the proposed equity interest or participating interest by the seller.

For this purpose, the fees payable was a fixed fee of US $ 2,50,000; if for any reason the transaction does not consummate and a success fee of 0.70% of the bid price, payable on successful closure of the transaction. The company has pointed out that the fixed fees shall not be payable if engagement is commenced, but the financial advisors are unable to continue or complete the transaction for reasons attributable to them. Notwithstanding this, payment of fixed fees shall become due and payable only after 90 days from the date of signing of the agreement with them.

Thereafter, the financial advisors submitted the report along with the presentation and the same was deliberated upon by the company and company ‘V’. After the internal deliberations the strategy meeting between the company and company ‘V’ for acquiring company ‘B’ was held wherein it was decided to bid for the various basins held by company ‘B’. An amount of Rs.2,40,95,418, (being 0.70% of bid price of US $ 82.5 million) after TDS was paid, to the financial advisors against the bill of the financial due diligence, etc.

Query
The company has treated the above success fees as revenue expenditure in the books of the company. Whether the aforesaid treatment is correct? If not, then what is the correct accounting treatment?

Opinion
The EAC noted that the underlying assets (PI) are not in the books of the company. The expenditure on account of success fees was incurred at the bidding process stage before the formation/ incorporation of company ‘A’. The success fee has relation to bidding process for PI and has no relation to the acquisition of equity shares in company ‘A’. Hence, the company has incurred the expenditure on fee to financial advisors for a commercial advantage which is to be availed through its joint venture company ‘A’, in whose books, the investment in company ‘B’ would appear. After considering paragraphs 28, 29 and 32 of Accounting Standard (AS) 13, ‘Accounting for Investment’ the committee took the view that in the present case the expenditure on fee paid to financial advisors cannot be included in the ‘cost of Investment’ at the time of initial recognition. Such expenditure also does not become part of carrying amount of the investment in the shares of company ‘A’ as the investment is to be carried at cost, with only diminution to be recognised under certain circumstances. Further, the committee noted that the term ‘asset’ has been defined in the Framework for the Preparation and Presentation of Financial Statements, issued by the Institute of Chartered Accountants of India as “a resource controlled by the enterprise as a result of past events from which future economic benefits are expected to flow to the enterprise”. Therefore, the committee is of the view that expenditure on fixed fee and success fee does not result into a resource control by the company and accordingly, it cannot be capitalised as an asset.

In view of the above, the expenditure on ‘fixed fee’ and ‘success fee’ incurred by the company does not meet the definition of an asset and should be expensed in the statement of profit and loss. Therefore, the treatment given by the company in its books of account is correct.

(Refer page Nos. 1202 to 1204 of C.A. Journal, February 2012) 3.

Results of Final C.A. Examination — Nov. 2011

Results of the above examination were declared in January, 2012. Analysis of the results of examinations held in last two years are as under.

4. Campus placement February-March, 2012 ICAI has organised campus placement programme for the newly qualified Chartered Accountants during February-March, 2012, at 17 centres. Detailed announcement about this programme is available

at www.cmii.icai.org. The places and dates are as under. The newly qualified members can take advantage of this facility at their respective cities.

(i) Baroda, Chandigarh, Indore, Kanpur and Nagpur 22-23 February, 2012

(ii) Bhuvaneshwar, Coimbatore and Ernakulam 23-24 February, 2012

(iii) Ahmedabad, Jaipur and Pune 27-29 February, 2012

(iv) Chennai, Mumbai and New Delhi 26-31 March, 2012

(v) Banglore, Hyderabad and Kolkata 28-31 March, 2012 (Refer page 1279 of C.A. Journal for February, 2012)

5. ICAI News

(Note :Page Nos. given below are from C.A. Journal for February, 2012)

(i) Vision 2030

ICAI has released ‘ICAI Vision 2030’ at its Annual Function held on 11-2-2012. Copies can be obtained from ICAI office. (Page 1142)

(ii) Health Insurance from members and students

ICAI has tied up with New India Assurance Co. Ltd. for launching a special scheme for members and C.A. students. Details are available at www. icai.org.in (Page 1142).

iii) New branches of ICAI

Following new branches have been opened by ICAI.
(a) Kannur branch (SIRC)
(b) Shivkashi branch (SIRC) (Page 1286)

(iv) New branch buildings of ICAI
Following new buildings have been inaugurated at branches of ICAI (SIRC):
(a) Coimbatore
(b) Nellore
(c) Madurai (Page 1142)

(v) Revision of fees payable to Expert Advisory Committee (EAC)

EAC of ICAI is giving opinions on Accounting and Audit Issues to members and others. At present, a fee of Rs.25,000 is required to be paid to EAC for each opinion. This fee is now enhanced to Rs.50,000 w.e.f. 10-1-2012 in cases which relate to an enterprise whose equity capital or debt securities are listed on the stock exchanges. Further, the increased fees are also payable in cases where the enterprise is having annual turnover exceeding Rs.50 crore based on the accounts of the year ending on a date immediately preceding the date of sending the query. In all other cases a fee of Rs.25,000 will be payable.

BCAJ Admin

FROM THE PRESIDENT

Telangana – India’s 29th state – February 2014
Mumbai – India’s 51st state – January 2050

Dear members of BCAS family,

Bhavya Bharat:
It is said, by many analysists, that India will overtake USA in 2050 to become the second largest economy. I believe that. Many sceptics do not believe that we can achieve this on GDP basis. But I am sure many will agree that we may have more states than USA by 2050 with Mumbai becoming the 51st state of India.

Back Stroke:
There is intellectual outrage at the formation of Telangana all across; of course, outside Telangana, that is. One stroke of line across the map and conflicting emotions are displayed. Some shed tears for fear of loss of livelihood, while on the other side, a gush of happiness upon hope of progress and prosperity. Not to forget the show of indignation by us who are nowhere affected by this stroke. This is also being referred to as a master stroke by Sonia Gandhi. Will this stroke strike down the chances of Congress being stricken down by the opposition in this ensuing election? Time will tell. Going by precedence, it did not help Atal Bihari Vajpayee to come back to power when in 2000 he struck not one, not two but three strokes to bring into existence Chhatisgarh, Jharkhand and Uttarakhand.

Bharat Nirmaan:
India must be one of those rare countries whose boundaries, both external and internal has been constantly changing.

A quick recap:
It can be debated as to who amongst Ashoka, Akbar and the British gave shape to India the way it was prepartition. I have just finished reading Empire of the Moghals by Alex Rutherford and as per the author, Akbar ruled over the largest empire bordering from Samarkhand in the North, Persia in the West, Bengal in the East and Deccan in the South. Much of the North and West was lost by the Moghals very early. Pakistan and what is now called Bangladesh was separated when we attained Independence. In all, 562 princely states joined to form India. The external boundaries as we see today were crystalised as late as in 1962 when the former French and Portuguese colonies in India were incorporated into the Republic as the union territories of Puducherry (Pondicherry), Dadra and Nagar Haveli, Goa, Daman and Diu.

Bharat Punarnirmaan:
Then started the internal reformation. Bombay split into Maharashtra and Gujarat in 1960. Haryana and Himachal Pradesh were carved out from Punjab in 1966. Add to that the conversion of Union territories like Sikkim and Goa to States.

Bharat Bhugol Bhavishya:
But this is not the end. There is a proposal lying with the central government to create Avadh Pradesh, Bundelkhand, Paschim Pradesh, and Purvanchal from Uttar Pradesh. Agitations are on for a separate Bodoland, Gorkhaland and Vidharbh.

And surely, Telangana will not be the last state. Brace yourselves for many more. And there’s nothing wrong in it. All the new states mentioned above have prospered post-separation. There seems to be merit in it. Governing large states is difficult, particularly with ethnic differences and neglect of large populations. America has 50 states while it’s population is just a quarter of ours. China has 34 provinces for a population marginally larger than ours. Thus, if a segment of populace feels alienated and neglected and feel their prosperity is possible, then who are we to object? Statehood is okay, separatism is a no-no.

Bharat Vibhajan:
There are separatist movements in J&K. The Akali movement is still active from North America. Will India disintegrate like the USSR? I am confident that will never happen. We are all bound together by a strong nationalist bond. Just like our joint families are becoming nuclear families, so is our country going through the same phase.

Andhra Bhojan Bhavishya:
Coming back to Telangana and Andhra Pradesh, being a foodie and with Andhra cuisine being one of my top favourites, I am awaiting clarity on whether my favourite dishes like palakura pappu, thotakura, iguru and Kodi Guntur will now be called Andhra dishes or Telangana dishes? Will know when I next go to my favourite jaunt at Andhra Bhavan in Delhi for Andhra Meals. I am sorry for sounding selfish but that’s the only interest I have in this episode.

My father studied a different map in school, I studied another while my daughter studied yet another. I am sure my grandchildren will study a completely new map.

Here’s wishing everyone happiness and love.

With Warm Regards

Naushad A. Panjwani

levitra

BCAJ Admin

FROM THE PRESIDENT

Dear Members, As I write this communication the assembly elections are in their final phase. The results are expected on 6th March, and they will have an impact on the future of the UPA government. The election results will be followed by another mega event, the presentation of the Union Budget on 16th March, for the year 2012- 13. While it is true that much of the hype that surrounds a budget presentation is created by the media, its importance cannot be ignored. While there are many more ways in which a government can bring in policy reform, a budget is an indication of the thinking of the government.

At the Society we make a pre-budget representation to the government with regard to the direct and indirect tax proposals. At the beginning of the financial year it was felt that the Direct Tax code (DTC) would be passed and consequently there would be no significant amendments in the Finance Bill as far as direct taxes are concerned. The DTC now having been postponed by at least one year, some of the proposals contained therein may well find a place in the budget. The DTC proposals have already been extensively debated and the thinking of the finance minister in that regard will be known on 16th March. In this communication I am taking the opportunity to air my thoughts about what I would expect from the finance minister of this great country in regard to proposals other than those related to taxes.

The primary aspect of worry is the burgeoning fiscal deficit. The government needs to control and restrict its administrative expenditure severely. In terms of quantum the saving may not be significant but it sends a message to the public that the government is serious about controlling the deficit and keeping it within the range of budgeted figures. In the bureaucracy there is urgent need to cut flab. Successive pay commissions have made government emoluments attractive, but none of them have addressed the problem of the waning efficiency.

Subsidies, including fertiliser subsidies form a substantial part of the government’s outlay. I believe that it is time that the government did a serious rethink on its strategies in regard to subsidy. Most of the subsidies have turned out to be inefficient in as much as they are a drain on the exchequer and yet do not reach the intended beneficiaries. The existing system needs to be phased out and a system whereby monetary assistance flows directly to beneficiary must be put in place. The UID system may facilitate this process. This would reduce the levels of corruption and make subsidies effective.

Education and health need to get a substantially increased allocation on par with infrastructure. We constantly talk of India’s demographic advantage. That advantage can be converted into well distributed economic prosperity only if quality education is made affordable. The government has legislated on the Right to Education, but it must not remain only on records. Public health systems in most states are in disarray. In this regard Central assistance is the need particularly in the smaller states. These are state subjects but the necessary impetus must be given by the Centre.

On account of political compulsions many big-ticket reforms have been put on the back burner. Irrespective of the assembly results, the government must bite the bullet. The disinvestment process has suffered substantially on account of inaction by the Centre. I am a firm believer in the maxim that the government has no business to be in business. Most of the Public sector undertakings need enterprising leadership. The government must unlock its capital invested in these undertakings so that the funds for infrastructural development are easily available.

And finally the budget must give agriculture its due share. This does not mean giving a loan waiver as the government did some time ago. What it really means is a sustained reform process for modernisation of agriculture. While growth in the agricultural sector as well as its contribution to the GDP is not satisfactory, the importance of agriculture can never be understated. The land use for primary agriculture is constantly reducing. This has implications well beyond short term economics. A nation should be reasonably independent in respect of its food requirements if it is to retain its stature in global politics. This is one aspect that the finance minister needs to consider.

Apart from the above, another aspect that is in a way unrelated to the budgetary exercise is government accounting. Business is expected to follow global accounting norms and the latest accounting standards. In fact, a lot of the problems in regard to government finance and government expenditure would be in the public domain if it is shifted from the cash method of accounting to accrual. However, this will be the subject matter of a separate communication.

For the time being let me wish readers a Happy Holi, and let us hope that in my next piece I can welcome a path-breaking budget.

Honest disagreement is often a good sign of progress.

— Mahatma Gandhi

levitra

BCAJ Admin

Company Law

1. Formation of High Level Committee For Corporate Social Responsibility:
The
Ministry of Corporate Affairs has vide General Circular No 1/2015 dated
3rd February 2015 constituted a High Level Committee to suggest
Measures for improved monitoring and implementation of Corporate Social
responsibility under Shri Anil Baijal.

2. Extension of Time for Filing Form for Appointment of Cost Auditor

The
Ministry of Corporate Affairs has vide General Circular no 2/2015 dated
11th February 2015 extended the time for filing of Notice of
Appointment of the Cost Auditor in Form CRA 2 without late fee till 31st
March 2015.

3. Companies (Indian Accounting Standards) Rules 2015:

The
Ministry of Corporate Affairs has vide Notification dated 16th February
2015 notified that Companies ( Indian Accounting Standards ) Rules 2015
which shall come into force by 1st April 2015 and will be applicable
for Companies specified therein for the year ending 31.03.2016.

4. Companies (Removal of Difficulties) Order, 2015 :

The Ministry of Corporate Affairs has passed the Companies (Removal of Difficulties) Order 2015 on 13th February 2015.

1 Section 2(85) which provides for the definition of “small Company” shall now read”

‘‘small company’’ means a company, other than a public company,—
(i)
paid-up share capital of which does not exceed fifty lakh rupees or
such higher amount as may be prescribed which shall not be more than
five crore rupees; and
(ii) turnover of which as per its last profit
and loss account does not exceed two crore rupees or such higher amount
as may be prescribed which shall not be more than twenty crore rupees:
Provided that nothing in this clause shall apply to— (A) a holding
company or a subsidiary company; (B) a company registered under section
8; or (C) a company or body corporate governed by any Special Act;

2
Section 186 which pertains to Loan and Invest ment by Company, the
following is to be added in sub section (11) in clause (b), after item
(iii):

“(iv) made by a banking company or an insurance company
or a housing finance company, making acquisition of securities in the
ordinary course of its business.

levitra

BCAJ Admin

From Published Accounts

Accounting for multiple schemes of amalgamation/arrangement and acquisition:

Sesa Sterlite Ltd . (31-3-2014)

From Notes to Accounts
The Scheme of Amalgamation and Arrangement (the “Scheme-1”) amongst Sterlite Energy Limited (‘SEL’), Sterlite Industries (India) Limited (‘Sterlite’), Vedanta Aluminium Limited (‘VAL’), Madras Aluminium Company Limited (‘Malco’) and the Company was sanctioned by the High Court of Judicature of Bombay at Goa vide its order dated April 3, 2013 and the Honourable High Court of Madras vide its order dated July 25, 2013. The Scheme became effective for Sterlite and Malco on August 17, 2013; and for SEL and VAL the scheme became effective on August 19, 2013.

The Honourable Supreme Court of Mauritius by an order dated August 24, 2012 and the Honourable High Court of Judicature of Bombay at Goa by an Order dated April 03, 2013, approved the Scheme of Amalgamation (the “Scheme-2”) of Ekaterina (holding 70.5% shareholding in Vedanta Aluminum Limited), with the Company. The effective date of amalgamation is August 17, 2013.

The summary of the appointed dates and effective dates of the schemes are as follows:

The above schemes have been given effect to in the financial statements for the year ended March 31, 2014.

I. Amalgamation of SEL with the Company:
(a) SEL was engaged in the generation of commercial power in the State of Odisha and was a wholly owned subsidiary of erstwhile Sterlite.

(b) In accordance with the Scheme-1:
(i) SEL stands dissolved without winding up with effect from January 01, 2011, on the effective date.

(ii) A ll assets, debts and liabilities of SEL have been deemed transferred to and vested in the Company with effect from January 01, 2011.

(iii) SEL carried on the business for and behalf of the Company for the period from the appointed date to the effective date, in trust as per the Scheme -1.

(iv) In accordance with the Scheme-1, upon Chapter 2 of the Scheme-1, becoming effective, SEL became a wholly owned subsidiary of SGL, and accordingly no shares were issued and allotted by SGL.

(c) The amalgamation has been accounted under the ‘Pooling of Interests’ method as envisaged in the Accounting Standard (AS) – 14 on Accounting for amalgamations specified in the Companies (Accounting Standard) Rules 2006, whereby:

(i) In accordance with the Scheme-1, the assets, liabilities and reserves (excluding share premium) of SEL as at January 01, 2011 along with subsequent additions/ deletions up to March 31, 2013 have been recorded at their book values. Further, equity share capital, share premium account of SEL, and investments in the equity shares of SEL has been eliminated and resultant balance amount of Rs. 2.48 crore has been debited to General Reserve of the Company.

(ii) The profits of SEL from appointed date January 01, 2011 to March 31, 2013 have been transferred to the Surplus in Statement of Profit and Loss of the Company. The operations of SEL during the year have been accounted for in the current year’s Statement of Profit and Loss of SEL as at April 01, 2013 Rs. 194.02 crore (after the alignment of accounting policies of SEL in line with SGL accounting policies) has been included in Surplus in Statement of Profit and Loss of the Company.

(iii) In terms of the Scheme-1 inter-company balance (payable, receivables, loans, advances, etc.) between SEL and the Company (after giving effect of Sterlite amalgamation) as at appointed date have been cancelled.

II. Amalgamation of Sterlite with the Company:
(a) Sterlite was engaged in the copper smelting business:

(b) In accordance with the Scheme-1 :
(i) Sterlite stands dissolved without winding up with effect from April 01, 2011, on the effective date.

(ii) 1,656,179,625 number of equity shares have been issued to the equity shareholders of Sterlite, except for equity shares of Sterlite held by MALCO and excluding shares against which Ads were issued in the ratio of 3 equity shares of face value of Rs.1/- each in the Company for every 5 equity shares held in Sterlite. 72,173,625 ADS of the Company representing 288,694,500 equity shares of the Company have been issued in the ratio of 3 ADS of the Company for every 5 ADS of Sterlite.

(iii) A ll assets, debts and liabilities of Sterlite have been deemed transferred to and vested in the Company with effect from April 01, 2011.

(iv) Sterlite carried on the business for and behalf of the Company for the period from the appointed date to the effective date, in trust as per the Scheme -1.

(c) T he amalgamation has been accounted under the ‘Pooling of Interests’ method as envisaged in the Accounting Standard [AS] – 14 on Accounting for Amalgamations specified in the Companies [Accounting Standard] Rules 2006, whereby:

(i) In accordance with the Scheme – 1, the assets, liabilities and reserves of Sterlite as at April 01, 2011 along with subsequent addition/deletion up to March 31, 2013 have been recorded at their book values. The difference between the value of total assets, total liabilities and the face value of share capital allotted to the shareholders of Sterlite amounting to Rs. 134,45 crore and credit balance in the General Reserve of Rs. 2,770.29 crore has been credited to the General Reserve in accordance with the Scheme – 1.

(ii) In terms of the Scheme – 1, inter-company balances [payables, receivables, loans, advances, etc.] between VAL – Aluminium and the Company [after giving effect of Sterlite amalgamation] as at appointed date have been canceled.

(iii) The profits of Sterlite from the appointed date April -1, 2011 to March 31, 2013 have been transferred to Surplus in the Statement of Profit and Loss of the Company. The operations of Sterlite during the year have been accounted for in the current year’s Statement of Profit and Loss of the Company. The balance in Surplus in Statement of Profit and Loss of Sterlite as at April 01, 2013, Rs. 3,069.67 crore [after the alignment of the accounting policies of Sterlite in line with SGL accounting policies] has been included in Surplus in Statement of Profit and Loss of the Company.

III. Aluminum Division of Vedanta Aluminium Limited [“VAL -Aluminium”] with the Company:

(a) Vedanta Aluminium Limited was engaged in the production of aluminium with associated captive power plants. “VAL-aluminium” consisting of 0.5 mtpa aluminium smelter at Jharsuguda and 1.0 mtpa alumina refinery at Lanjigarh in the State of Odisha.

(b) In accordance with the Scheme -1:
(i) VAL-Aluminium demerged from VAL and merged with the Company from appointed date April 01, 2011.

(ii) N o shares have been issued and allotted by the Company to Vedanta Aluminium Limited for the demerger of the VAL-Aluminium and merger with the Company.

(iii) All assets, debts and liabilities of VALAluminium have been deemed transferred to and vested in the Company with effect from April 01, 2011.

(iv) Vedanta Aluminium Limited carried on VALAluminium business for and behalf of the Company for the period from the appointed date to the effective date, in trust as per the Scheme -1.

(i) In accordance with the Scheme-1, the assets and liabilities of VAL-Aluminium as at April 01, 2011 along with subsequent addition/deletion up to March 31, 2013 have been recorded at their book values. Further, in accordance with the Scheme-1, excess of book values of assets over liabilities of VAL-Aluminium business amounting to Rs. 532.46 crore has been credited to General Reserve of the Company.

ii. amalgamation of sterlite with the company:
(a) Sterlite was engaged in the copper smelting business:

(b) In accordance with the Scheme-1 :
(i) Sterlite stands dissolved without winding up with effect from April 01, 2011, on the effective date.

(ii) 1,656,179,625 number of equity shares have been issued to the equity shareholders of Sterlite, except for equity shares of Sterlite held by maLCo and excluding shares against which Ads were issued in the ratio of 3 equity shares of face value of Rs.1/- each in the Company for every 5 equity shares held in Sterlite. 72,173,625 adS of the Company representing 288,694,500 equity shares of the Company have been issued in the ratio of 3 adS of the Company for every 5 ADS of Sterlite.

(iii) All assets, debts and liabilities of Sterlite have been deemed transferred to and vested in the Company with effect from april 01, 2011.

(iv) Sterlite carried on the business for and behalf of the Company for the period from the appointed date to the effective date, in trust as per the Scheme -1.

(c) The amalgamation has been accounted under the ‘Pooling of interests’ method as envisaged in the accounting Standard [AS] – 14 on accounting for Amalgamations specified in the Companies [Accounting Standard] Rules 2006, whereby:

(i) In accordance with the Scheme – 1, the assets, liabilities and reserves of Sterlite as at april 01, 2011 along with subsequent addition/deletion up to march 31, 2013 have been recorded at their book values. The difference between the value of total assets, total liabilities and the face value of share capital allotted to the shareholders of Sterlite amounting to Rs. 134,45 crore and credit balance in the General reserve of Rs. 2,770.29 crore has been credited to the General reserve in accordance with the Scheme – 1.

(iii) The profits of Sterlite from the appointed date april -1, 2011 to march 31, 2013 have been transferred to Surplus in the Statement of Profit and Loss of the Company. The operations of Sterlite during the year have been accounted for in the current year’s Statement of Profit and Loss of the Company. the balance in Surplus in Statement of Profit and Loss of Sterlite as at april 01, 2013, Rs. 3,069.67 crore [after the alignment of the accounting policies of Sterlite in line with SGL accounting policies] has been included in Surplus in Statement of Profit and Loss of the Company.

iii. Aluminum Division of vedanta aluminium limited [“val-aluminium”] with the company:

(a) Vedanta Aluminium Limited was engaged in the production of aluminium with associated captive power plants. “VAL-aluminium” consisting of 0.5 mtpa aluminium smelter at jharsuguda and 1.0 mtpa alumina refinery at Lanjigarh in the State of Odisha.

(b) In accordance with the Scheme -1:

(i) VAL-Aluminium demerged from VAL and merged with the Company from appointed date april 01, 2011.

(ii) no shares have been issued and allotted by the Company to Vedanta Aluminium Limited for the demerger of the VAL-Aluminium and merger with the Company.

(iii) All assets, debts and liabilities of VAL- aluminium have been deemed transferred to and vested in the Company with effect from april 01, 2011.

(iv) Vedanta Aluminium Limited carried on VAL- aluminium business for and behalf of the Company for the period from the appointed date to the effective date, in trust as per the Scheme -1.

(i) In accordance with the Scheme-1, the assets and liabilities of VAL-Aluminium as at April 01, 2011 along with subsequent addition/deletion up to march 31, 2013 have been recorded at their book values. Further, in accordance with the Scheme-1, excess of book values of assets over liabilities of VAL-Aluminium business amounting to rs. 532.46 crore has been credited to General reserve of the Company.

(ii) In terms of the Scheme, inter-company balance (payables, receivable, loans, advances, etc.) between VAL-Aluminium and the Company (after giving effect of Sterlite amalgamation) as at appointed date have been cancelled.

(iii) The losses of VAL-Aluminium during the period april 01, 2011 to march 31, 2013 have been transferred to Surplus in Statement of Profit and Loss of the Company. The operations of VAL-Aluminium during the year have been accounted for in the current year’s Statement of Profit and Loss of the Company. The debit balance of Surplus in Statement of Profit and Loss of VAL-Aluminum as of April 01,2013 rs. 4,389.54 crore (after the alignment of accounting policies of VAL-Aluminium in line with SGL accounting policies) has been included in Surplus in Statement of Profit and Loss of the Company.

(iv) In accordance with the Scheme-1, post the vesting of VAL-Aluminium business with the Company, shortfall of book values of assets over the liabilities of the aluminium business after adjusting the carrying value of equity share investment in VAL as on the effective date not representing by the net assets value of VAL as on effective date amounting to Rs. 1,471.63 crore has been debited to General reserve of the Company.

iv. Residual business of The Madras aluminium company limited (‘Malco- residual’) with the company:

(a) The madras aluminium Company Limited (malco) was engaged in the production of aluminium and commercial power generation business in the State of Tamilnadu.

(b) In accordance with the Scheme-1:

(i) In accordance with the Scheme-1, the power business of malco consisting of 100 MW coal based power plant was sold at a consideration of Rs. 150.00 crore to VAL with appointed date of april 01, 2012. Residual business of malco merged with the Company from appointed date august 17, 2013 and malco ceased to exist.

(ii) 78,724,989 number of equity shares have been issued to the equity shareholders of Malco in the ratio of 7 equity shares of face value of Re. 1/- each in the Company for every 10 equity shares held in malco.

(iii) All assets, liabilities and reserves of malco- residual business were deemed transferred to and vested in the Company with effect from august 17, 2013.

(c) The amalgamation has been accounted under the ‘Pooling of interests’ method as envisaged in the accounting Standards (AS) – 14 on accounting for Amalgamations specified in the Companies (Accounting Standard) Rules 2006, whereby:

(i) The assets, liabilities and reserves of malco- residual (except investment in the equity shares of Sterlite) as at appointed date have been recorded at their respective carrying values in the books of the Company. in accordance with the Scheme-1, the difference between the value of total assets (excluding investment in Sterlite), total liabilities, reserves and the face value of share capital allotted to the shareholders of malco Rs. 14.62 crore and credit balance in the General reserve of Rs. 231.24 crore has been credited to General reserve of the Company.

(ii) In terms of the Scheme-1, as at appointed date the investment in the equity shares of Sterlite in the books of malco-residual has been cancelled and resultant balance amount of Rs. 312.26 crore has been debited to General reserve of the Company.

(iii) In terms of the Scheme-1, inter-company balances (payables, receivables, loans, advances, etc.) between malco-residual and the Company as at the appointed date have been cancelled.

(iv) The balance in Surplus in Statement of Profit and Loss of malco-residual as at august 17, 2013 rs. 351.06 crore (after the alignment of accounting policies of malco-residual business in line with SGL accounting policies) has been included in Surplus in Statement of Profit and Loss of the Company.

(d) Upon the Scheme becoming effective and with effect from the appointed date, the assets and liabilities of the power business undertaking, as appearing in the books of malco at the close of business on the day preceding the appointed date as vested in the Company, are recorded by Vedanta Aluminium Company (“VAL”) at a value derived by apportioning the cash consideration paid amongst all assets and liabilities pertaining to the power business of the undertaking. In terms thereof, VAL has recorded assets of Rs. 216.98 crore and liabilities of Rs. 66.98 crore by apportioning the cash consideration of Rs. 150 crore as stated above.

Subsequently, the name of VAL has been changed to malco energy Limited w.e.f. october 24, 2013.

v. Amalgamation of Ekaterina limited (ekaterina) with the company:

(a) The honourable high Court of judicature of Bombay at Goa, by an order dated april 03, 2013, and the honourable Supreme Court of mauritius by an order dated august 24, 2012, approved the Scheme of amalgamation (the “Scheme-2”) of Ekaterina (holding 70.5% shareholding in Vedanta aluminium Limited), with the Company effective from the appointed date april 01, 2012. the effective date of amalgamation is august 17, 2013.

(b) In accordance with the Scheme-2 :
(i) 72,034,334 number of equity shares were issued to the equity shareholders of Ekaterina in the ratio of 1 equity shares of face value Re. 1 each in the Company for every 25 shares held in ekaterina.

(ii) In accordance with the Scheme-1, the assets, liabilities and reserves of ekaterina as at april 01, 2012 along with subsequent addition/ deletion up to march 31, 2013 have been recorded in the books of the Company at their respective book values.

(iii) Ekaterina stands dissolved without winding up with effect from april 01, 2012.

(iv) Ekaterina carried on the business for and behalf of the Company for the period from the appointed date to the effective date, in trust as per the Scheme-2.

(c) The amalgamation has been accounted under the ‘Pooling of interests’ method as envisaged in the accounting Standard (aS) – 14 on accounting for Amalgamations specified in the Companies (Accounting Standard) Rules 2006, whereby:

(i) The assets, liabilities and reserves of ekaterina as at appointed date have been recorded at their respective carrying values in the books of the Company. in accordance with the Scheme-2, difference between total assets, total liabilities, reserves and the face of value shares capital allotted to the shareholders of EKTL amounting to Rs. 917.48 crore credited to General reserve of the Company.

(ii) In terms of the Scheme-2 inter-company balances (payables, receivables, loans, advances, etc.) between ekaterina and the Company as at the appointed date have been cancelled.

VI. Consequent to the above and utilising the carry forward unabsorbed tax losses of VAL-Aluminium and SeL, the Company has recognised a current tax credit of Rs. 1,755.09 crore during the year.

VII. Subsequent to the effectiveness of the Scheme, a Special Leave petition challenging the order of the high Court of judicature of Bombay at Goa has been filed by the income tax department, a creditor and a shareholder have challenged the Scheme in the high Court of madras. The said petitions are pending for admission/hearing.

VIII. Subsequent to the effectiveness of the Scheme, all the subsidiaries of erstwhile Sterlite industries (india) Limited have become subsidiaries of the Company. Consequent to the above, such subsidiaries have been consolidated in the Group Consolidated Financial Statements from april 1, 2013 and an amount of Rs. 47,151.30 crore has been accounted under reserves & Surplus [refer note no 6) as an adjustment “Pursuant to Scheme of Amalgamation”, which includes the adjustments to the General Reserves and the adjustments to the General reserves and Surplus in Consolidated Statement of Profit and Loss, as referred to in Notes I to V above.

34. Acquistion of val’s power business through slump sale:

By way of Slump sale agreement dated august 19, 2013 between VAL and the Company, the power business consisting of 1,215 mW (9X135MW) captive power plants situated at jharsuguda and 300MW co-generation facility (90mW operational and 210mW under development) at Lanjigarh together with the assets and liabilities, has been purchased by the Company on a going concern basis at its carrying value at a consideration of ` 2,893 Crore.

35. Pursuant to the share purchase agreement, dated February 25, 2012 between Bloom Fountain Limited (‘BFL’), a wholly owned subsidiary of the Company and Vedanta Resources Holdings Limited (‘VRHL’), BFL acquired 38.68% shareholding in Cairn India Limited and associated debts of $5,998 million by way of acquisition of Twin Star Energy Holdings Limited (‘tehL’), for a nominal cash consideration of $1. Consequently w.e.f. August 26, 2013, TEHL, twin Star mauritius holdings Limited (‘tmhL’) and Cairn india Limited (including all its subsidiaries) have become subsidiaries of the Company.

The effect of acquisition of TEHL, TMHL and Cairn India Limited on the financial position and results as included in the consolidated financial statements for the year ended March 31, 2014 are given below:

From the auditors’ report
EMPHASIS OF MATTER

We draw attention to Note 31 to the financial statements which describes the Scheme of amalgamation and Arrangement and its effects given in the financial statements.

Our opinion is not qualified in respect of this matter.

BCAJ Admin

From the President

Dear members,

Over the last few decades, we have witnessed tremendous technological developments that have drastically improved life for mankind. The next few decades are likely to be a period of profound scientific change. The inventions once confined to the realm of science fiction are coming into common usage. A German Sociologist and Media Researcher Volker Grassmuck says, “The ultimate promise of technology is to make us masters of a world that we command by the push of a button.”

With the rise of computing and digital technology, the automation process started crossing boundaries with automation of even mental work. Authors Erik Brynjolfsson and Andrew McAfee in their book “The Second Machine Age” make a case that humanity has reached an “inflection point” for the digital age. The computers and other digital advances are doing for mental power, what the steam engine and its descendants did for muscle power. The Artificial Intelligence (AI) and machine learning technology have enabled computers to make decisions, recognise speech and visualise in 3D. The Internet of Things (IoT) that connects devices, systems, and services and goes beyond machine-to-machine communications is spreading quickly and is expected to connect nearly 26 billion devices by 2020.

A case in point is the self-driving car being developed by several companies. You could get in the car, go to sleep and wake up at your destination. With Google, Tesla, Uber and now even Apple joining the race, autonomous vehicles are predicted to be commercially available by 2020.

Such technological developments result in unintended consequences. Brynjolfsson and McAfee argue that while automation of the physical work still requires humans to be the control system, it is less clear what the role of humans would remain with automation of the control system itself. Such developments could lead to technological unemployment as there may not be another big sector of the economy to absorb all these workers.

Stephen Hawking, a well-known scientist, has warned that AI could one day spell the end for mankind and that humanity faces an uncertain future as technology learns to think for itself and adapt to its environment.

In his book “The Rise of the Robots”, the Silicon Valley-based futurist Martin Ford forecasts significant unemployment and rising inequality unless radical changes are made. In the past, technology created as many jobs as it destroyed and made people better off by making goods and services cheaper. However, this premise is no longer valid. Martin argues that increasingly the humans are becoming less and less useful compared to machines. As an example, he cites New York-based start-up Work Fusion, which sells software to businesses to automate big projects that would previously have been done by office workers. The software divides the job into micro-tasks, automates the repetitive bit then recruits freelance workers through crowdfunding platforms for tasks that require thinking. The software not only manages these freelance workers, it monitors what they are doing, but also learns from them. Over time, the software can automate more and more. As freelance workers do their jobs, they are, in effect, training the software to replace them.

A survey of nearly 2,000 experts carried out by the Pew Research Centre, reveals over half of them believe the technology will have displaced more jobs than it creates by 2025. In a recent study conducted in the UK, Michael Osborne and Carl Frey from Oxford University conclude that 35% of UK jobs were at high risk of disappearing in 10 to 20 years because of automation.

The experts foresee the job categories most at risk include cab drivers as well as neurosurgeons as driverless cars would cause lesser accidents. It will also include professionals such as taxation experts and accountants where the job involves manipulating a formulaic information. Disruptive innovation does not take kindly to entrenched competitors, and autonomous car could severely impact not only the major automakers but also ancillary and allied industries.

Is it that we are extrapolating too far based on examples such as self-driving cars? Is mankind capable of adapting to the big shifts in employment? Probably the risk to some of the professions is exaggerated as the importance of human interactions and discretion cannot be underestimated.

Many believe that greater automation would continue to raise average productivity, new sectors opening up leading to more exciting, more cognitively challenging, better paid and fewer dangerous jobs. Some experts believe that there will still be plenty of room for humans, with common sense and judgment, to complement the work of machines. The advancements such as autonomous cars have the potential to reverse the trend of global warming and drastically reduce our dependence on fossil fuels.

Individuals will need to cultivate skills such as idea generation or performing arts where humans currently have the comparative advantage. The recommendations for policymakers could include boosting entrepreneurs to enable them to invent the new industries and jobs necessary to replace the old ones and refocusing education to emphasise creativity and interpersonal skills. Thus, while the debate over philosophical and ethical aspects will continue, mankind will need to exercise intellectual discernment to contain negative fallouts of technology developments.

On a separate note, the much awaited IndAS has finally seen the light of the day. The Ministry of Corporate Affairs notified the Companies (Indian Accounting Standards) Rules 2015 which come into force on 1st April, 2015. The announcement came while the 5th Residential Study Course on IFRS/Ind AS organised by the BCAS was in progress. Thus, your Society became the first organisation in India to hold a program on the notified Ind AS.

By the time you read this message, we would be busy dissecting provisions of the Finance Bill, 2015 and the Union Budget for 2015-16. The recent election results in Delhi suggest that Aam Aadmi is getting restless. It tells that no ruling dispensation can take the public for granted and let’s hope that the Government has learnt useful lessons. We look forward to the first full-fledged budget of the NDA to be a step towards fulfilling all the promises made and meeting raised expectations that puts India back on a high and all-encompassing growth trajectory.

With warm regards,

levitra

BCAJ Admin

Direct Taxes

55. Explanatory notes to the provisions of Finance (No 2) Act, 2014 – Circular No. 1 dated 21 January 2015

56. CBDT has issued instruction regarding acceptance of the Order of the Hon’ble High Court of Bombay in the case of Vodafone India Services Pvt. Ltd.- Instruction No. 2 dated 29 January 2015

57. Interest under section 234A of the Act not to be charged on the self assessment tax paid before the due date of filing of the return – Circular no. 2/2015 dated 10 February 2015

58. TDS/TCS is deducted but not deposited within the due date – Circular dated 2 February 2015

All cases where TDS/TCS is deducted but not deposited within the due date, as prescribed, are punishable u/s 276B/276BB or 278A. The selection of cases and their processing is governed by Instruction F.No. 285/90/2008-IT(Inv-I)/05 dated 24th April 2008 which has been modified by the CBDT [vide F.No.285/90/2013- IT(Inv.)] dated 7th February 2013. Presently, the monetary limit specified for cases to be considered for prosecution is as under:-

(i) Cases, where amount of tax deducted is1,00,000 or more and the same is not deposited by the due date as prescribed shall mandatorily be processed for prosecution in addition to the recovery.

(ii) Cases, where the tax deducted is between Rs. 25,000 and Rs. 1,00,000 and the same is not deposited by the due date as prescribed may be processed for prosecution depending upon the facts and circumstances of the case, like where there are instances of repeated defaults and/or tax has not been deposited till detection.

The circular further prescribes the procedure for identification of cases of default, launching prosecution and standard operating procedure defining role of various TDS authorities in addressing the issue of prosecution and compounding of TDS cases.

59. Protocol amending the DTAA between India and of South Africa for the avoidance of double taxation and the prevention of fiscal evasion with respect to taxes on income shall come into force from 26th November, 2014-Notification No. 10-2015-FT and TR-II dated 2nd February 2015

60. Income-tax (2nd Amendment) Rules, 2015 – Amendment in Rule 44E and introduction of Form 3CEFB – Notification No. 11 dated 4th February 2015[S.O.350(E)]

CBDT prescribes Safe Harbour Rules for specified Domestic Transactions which areapplicable for a Government company engaged in generating and supply of electricity, transmission of electricity, wheeling of electricity and Form No. 3CEFB prescribed.

61. Commodities Transaction Tax (First Amendment) Rules, 2014 – Amendment in Rule 3 – Notification No. 13 dated 10th February 2015 [F.No. 142-09-2013-TPL]

62. Clarification regarding amounts not deductible under section 40(a)(i) of the Act – Circular No. 3 dated 12th February 2015

As per the Instruction No. 2/2014 dated 26-02-2014 of CBDT, it has been clarified that under the provisions of section 195 of the Act the AO will determine the appropriate portion chargeable to tax on which TDS should have been deducted in case of prescribed foreign remittance. Now CBDT clarifies that the disallowance u/s. 40(a)(ia) of the Act would be connected to such appropriate amount and not the entire sum remitted.

63. CBDT Lays down procedure for launching prosecution for TDS / TCS defaults – copy of the same is available on www.bcasonline.org

64. Clarification regarding aaplicability of Section 143(1D) of the Act – Instruction no. 1 of 2015 dated 13 January 2015

CBDT has clarified that in case notice has been issued u/s. 143(2) of the Act for scrutiny, then the return need not be processed u/s. 143(1D) of the Act. Also the scrutiny assessment would be completed expediously in such cases.

65. Statement of income to be furnished by business trusts to prescribed authorities and unit holders in prescribed Form 64A and Form 64B – respectively – Income tax (1st Amendment) Rules 2015 – Notification no. 3/2015 dated 19.1.15

levitra

BCAJ Admin

Lecture Meeting

Topic : I mportant Income-tax decisions of 2014
Speaker : H iro Rai, Advocate
Date : 29th January 2015
Venue : Walchand Hirachand Hall, Indian
Merchants Chamberr

The Speaker started with Supreme Court decisions, dealing first with the case of Sanjeev Lal vs. CIT 365 ITR 389 wherein exemption u/s. 54F was denied by the AO on the grounds that the final sale was delayed and purchase of new house was more than one year prior to date of actual sale. The Court held that certain rights passed even on agreement for sale, and on a liberal interpretation of the exemption provision, the sale could have been regarded as having taken place at the time of agreement to sell. The circumstances of litigation which caused the delay in completion of sale were beyond the assessee’s control, and could not be the basis for denying the eligibility of exemption u/s. 54F to the assessee if the assessee fulfilled the other conditions specified in section 54F. This principle can also be applied for claiming benefit u/s. 54.

The speaker then threw light on a wealth tax decision in Amrit Banaspati Co. Ltd. vs. CWT 365 ITR 515 (SC). The Assessing Officer (AO) found that the valuation declared by the assessee on the basis of capitalisation of municipal rateable value was very low compared to the market value of the property; so also the sale value as per agreement was much higher than value as per municipal rateable value. The Supreme Court held that it was a case where it was not practicable to apply rule 3, due to the very low valuation as compared to the fair market value. The valuation of property was, therefore, held proper under rule 8(a) i.e. as per fair market value.

In the case of CIT vs. Tip Top Typography 368 ITR 330 (Bom HC) the Assessing Officer (AO) noticed that the rent received by the assessee on letting out commercial premises along with car parking was nominal and the circumstantial evidence indicated that the fair market value was higher. Therefore, AO obtained instances of the rental amount prevailing in the market in the area and confirmed that the property was not covered by the Rent Control Act. On the basis of such comparable instances, the annual letting value as provided u/s. 23(1)(a) was determined at a much higher figure.

The Bombay High Court held that the market rate in the locality is an approved method for determining the fair rental value but it is only when the Assessing Officer is convinced that the case before him is suspicious, determination by the parties is doubtful, that he can resort to enquire about the prevailing rate in the locality. The municipal rateable value may not be binding on the Assessing Officer but that is only in cases of afore-referred nature. AO cannot brush aside the rent control legislation if it is applicable to the premises in question. Accordingly, the AO had to undertake the exercise contemplated by the rent control legislation for fixation of standard rent. Further the court held that if AO desires to undertake the determination himself, he would have to go by the Maharashtra Rent Control Act, 1999. Merely because the rent has not been fixed under that Act does not mean that any other determination and contrary thereto can be made by the AO.

Due to the above two decisions of Amrit Banaspati Co. Ltd. and Tip Top Typography, assessees owning more than one house could face problems in assessment if the assessing officer has reason to believe that the value adopted by assessee is very low or absurd, resulting in the assessing officer adopt the fair market value of the property for the wealth tax or of the rent for income tax purpose.

The Supreme Court in the case of Himatsingka Seide Ltd.,(2014) 266 CTR 141 gave a four liner decision affirming the decision of Karnataka High Court [CIT vs. Himatsingka Seide Ltd. (2006) 286 ITR 255] wherein the High Court held that unabsorbed depreciation should be adjusted against income of export oriented business, and the taxpayer cannot adjust unabsorbed depreciation against other income, so as to take exemption from payment of tax even for other income, as section 10B is an exemption section and not a deduction section.

On a similar issue, the Bombay High Court in the case of CIT vs. Black & Veatch Consulting (P.) Ltd. (2012)348 ITR 72 held that the brought forward unabsorbed depreciation and losses of the unit, the income of which is not eligible for deduction u/s. 10A, cannot be set off against the current profit of the eligible unit for computing the deduction u/s. 10A. It may be noted that the said decision of the Bombay High Court was cited before the apex court in the case of Himatsingka Seide Ltd.,(2014) 266 CTR 141.

However, the department has started taking the view that deduction u/s. 10A or 10B should be availed by the assessee only after setting off unabsorbed depreciation and unabsorbed business loss, if any, incurred by assessee.

In Vodafone India Services Private Limited vs. UOI & Others 368 ITR 1, the Bombay High Court held that issue of shares at a premium by Vodafone India in favour of its AE did not give rise to any “income” from an International Transaction, as income would not include capital receipts unless specifically stated in the income tax act, and therefore, there was no need to invoke Transfer Pricing provisions. A decision has been taken by the Government not to challenge this decision further before the Supreme Court, and this decision has therefore attained finality.

In the case of CIT vs. Nayan Builders 368 ITR 722, Bombay High Court upheld the decision of tribunal wherein tribunal held that since the High Court admitted the appeal filed by assessee, substantial questions of law were involved. Accordingly penalty u/s. 271(1)(c) of the Incometax Act, 1961 imposed by the Assessing Officer was cancelled. Based on the said decision, if an assessee finds any appeal admitted by the high court covering similar issue as that of assessee, then relying on the decision of Nayan Builders, the assessee can plead that penalty u/s. 271(1)(c) cannot be levied.

The next issue was whether a foreign company deductee can claim that since tax was deductible at source, even though no tax was actually deducted at source, no interest u/s 234B can be levied. In the case of DIT (IT) vs. Alcatel Lucent USA, Inc (264 CTR 240), the Delhi High Court held that it seems inequitable that an assessee, who accepted the tax liability at first appellate stage after initially denying it, should be permitted to shift the responsibility to the Indian payers for not deducting the tax at source from the remittances, after leading them to believe that no tax was deductible. Further, it held that the assessee must take responsibility for its volte face and once the liability to tax is accepted, all consequences follow and same cannot be avoided. It also held that the present case is one where equitable considerations should prevail in the interpretation of section 234B otherwise, it would not merely result in injustice and the purpose of the provision would also not have been achieved.

However, in the case of DIT (IT) vs. NGC Network Asia LLC [2009] 313 ITR 187, where the revenue preferred an appeal contending that the assessee was liable to pay advance tax even on the amount which had not been deducted at source u/s. 195. The Bombay High Court relying on the decision of CIT vs. Sedco Forex International Drilling Co. Ltd. [2003] 264 ITR 320 (Uttaranchal) held that where the deductor has failed to deduct tax, the shortfall attributable to non-deduction of tax at source cannot be the deductee’s fault, so as to be the subject matter of interest u/s. 234B.

Given both opposite decisions i.e. favourable and unfa- vourable to assessee, in case the Supreme Court upholds the decision of delhi high Court in case of alcatel Lucent, USA, which was unfavorable to the assessee, then this would result into a large number of litigations, as there are many cases pending with huge amounts involved in similar matters.

The next interesting issue discussed by the speaker was whether there could be disallowance of payments u/s. 40(a)(ia) of the income-tax act on account of short deduction of TDS. In such cases, there are different views, one being that the deduction not being in accordance with law, the entire payment could be disallowed. The second view is that disallowance should be proportionate to short deduction. The third view is that there need be no disallowance when there is short deduction. It was this third view, which was adopted by the high Court in CIT vs. S. K. Tekriwal [2014] 361 ITR 432 (Calcutta high Court). The high Court had not given its detailed reasoning, but reproduced the tribunal order, which took the view that though the short deduction may attract proceedings under section 201, disallowance u/s. 40(a)(ia) is not possible, when there is a bona fide short deduction. However the matter is not free from doubt, and one should probably await finality either from the Supreme Court or by way of clarification on the disallowance in such situations.

In the case of Mitsubishi Corporation India Pvt. Ltd vs. DCIT 166 TTJ 385 (2014), the assessee made certain payments to its associated enterprise. Such payments were disallowed by the ao u/s. 40(a)(i). the delhi tribunal, applying the non-discrimination clause, held that Second proviso to section 40(a)(ia) is also required to be read into section 40(a)(i), in cases where related payments are made to the tax residents of japan, as long as the japanese tax residents have taken into account the payments made to them by indian residents without deduction of tax at source in their computation of income, paid interest thereon and have filed the related income tax returns u/s. 139(1) in india, the payments so made by the indian enterprise cannot be disallowed in the hands of indian enterprise.

W.e.f. a.y. 2015-16, disallowance u/s. 40a(ia) is reduced to only 30% instead of previous 100% disallowance. according to the Speaker, since section 40a(i) has not been amended on similar lines, the non discrimination clause could be invoked as in the case of mitsubishi Corporation.

Dealing with a few tribunal decisions, in the case of Zaveri & Co. (P.) Ltd. vs. CIT 32 ITR (T) 50, ITAT Ahmedabad held that fixed deposit receipts taken for obtaining Letter of Credit for purchases, on which interest was earned by the assessee, an SEZ unit, were business assets of the assessee acquired in the course and for the purposes of its business. Hence, interest income earned on fixed deposit had to be assessed as business income of the assessee while calculating benefit u/s. 10AA of the Income tax act.

The last decision quoted by the speaker was on the current issue of bogus purchases. itat mumbai, in the case of Shri Rajeev G. Kalathil vs. DCIT 67 SOT 52, held that Purchases cannot be termed as bogus by the ao merely because the supplier was listed as a hawala dealer by the VAT authorities. In the said case, CIT(A) held that the transactions were supported by proper documentary evi- dences, that the payments made to the parties by the assessee were in confirmation with bank certificate, and the mere fact that the supplier was shown as defaulter under the Maharashtra VAT Act could not be sufficient evidence to hold that the purchases were non-genuine. The ao had not brought any independent and reliable evidence against the assessee to prove the non-genuineness of the purchases, and there was no evidence regarding cash received back from the suppliers. The addition made by the ao was deleted by the CIT(a). On further appeal by department, hon’ble mumbai tribunal upheld the order of CIT(a).

The meeting ended with a vote of thanks to the Speaker.

BCAJ Admin

Cancerous Corruption

The world over, it is now realised that containing
Corruption in the business practices enhances the value of the business
enterprise and its business activities.

UN Global Compact
Network, India is the top rank NGO spreading the above findings.
Hereunder is the article printed in their publication released in Mumbai
on 6th February, 2015 (Where BCAS was a business partners and
incidentally, Nitin Shingala was one of the panelists on session on
discussion) titled:

BUSINESS CASE FOR ANTI-CORRUP TION

Section 1
Foreword
Dinesh K. Sarraf
President, Governing Council,
UN Global Compact Network India,
Chairman & Managing Director,
Oil and Natural Gas Corporation Ltd. (ONGC)

The
idea of anti-corruption entered into international development
discourse in the 1990s, defining corruption as a major global problem,
being “sand for the wheels of commerce” and affecting development
negatively. On one level, it can refer to the risk of taxpayers’ money
in Government’s projects being fraudulently spent or stolen. On another
level, it can refer to corruption within a country’s financial structure
and institutions including that in the private sector, with the
negative impact that this has on economic growth of the country.

Corruption
retards the pace of development and impedes developmental activities.
It not only suppresses the economic growth by driving up costs, but also
undermines the sustainable management of the environment and natural
resources and results in criminal activity, malfunctioning state
institutions and weak governance.

With the evolution of
economies, mandate of the businesses have moved from being profit-making
entities to socially responsible organisations. Over the past few
years, clean business has emerged as one of the primary objectives of
the organisations. One of the most efficacious recommendations for
business practice to tackle corruption has been found within the ambit
of Collective Action. The idea is simple – get companies working
together with their competitors and other stakeholders to create
decisions that are driven by economic considerations and not by corrupt
transactions.

Global Compact Network India (GCNI), in furthering
the UNGC’s 10th principle on Anti-Corruption, implemented the
Collective Action Project (CAP) from 2011-2014. This project, in a
phased manner, took up pressing corruption issues in the Indian context,
in the spheres of public procurement, bribery and fraud, supply chain
transparency and sustainability, transparency in sports and sports
related hospitality, and facilitated businessacademia dialogue in the
country.

Over the past few years, clean business has emerged as
one of the primary objectives of the organisations. One of the most
efficacious recommendations for business practice to tackle corruption
has been found within the ambit of Collective Action.

In its
first series of Pan-India consultation conducted during 2011-2012 titled
‘Ethical Business for Profitability’, CAP partnered with academicians,
civil society, chambers of commerce, and international business councils
to share their best practices which were being followed in various
sectors. This consultation resulted in CAP India’s first publication
“Raising the Bar through Collective Action: Anti-corruption Efforts in
Action in India”.

CAP conducted its second series of pan-India consultation in the second half of 2012 titled Turning Down the Demand: Cutting off the Supply – Collective Efforts to reduce Corruption in India.
The main aim of the consultations was to examine innovative ways in
which corruption could be tackled and explore ground realities that are
not factored in while constructing Anticorruption policies. The
consultations provided recommendations that became part of the second
CAP India publication – a study that showcased trends of private sector
fraud and bribery in the last fifteen years in India. This third and
final publication of CAP Project presents the Business Case for
Anticorruption in India. Many companies and business entities have
shared their practical experiences in this publication as to how they
have been investing in getting their processes and procedures in order,
so that businesses could be graftfree; and to ensure transparency in
their supply chain and procurement mechanism, irrespective of the size
of the business. I am sure this publication will be a very useful
reference for many new as well as existing business entities.

UN GLOBAL COMPAC T 10TH PRINCIPLE:

Olajobi Makinwa
Head, Transparency and Anticorruption Initiatives, United Nation Global Compact

The journey so far and the way ahead

The
world is now a global village. While the world is shrinking,
traditional roles and responsibilities of business and governments are
shifting and merging. The interconnectedness of roles and
responsibilities are much more pronounced than ever before. Private
investment, thriving entrepreneurship and vocational training are more
needed today. In a globalised world, the private sector is expected to
do much more in areas that used to be the exclusive domain of the public
sector. away from the public relations realm to a strategic one handled
at the highest levels of the company. Longterm financial success is now
seen to go hand-in-hand with environmental stewardship, social
engagement and effective governance for sustainable development. Bribery
and corruption is no longer accepted as a way to conduct business. The
current demand for transparency, integrity and accountability is
consistent all over the world. Businesses and governments, more than
ever before, are daily asked to conduct business with integrity,
openness, accountability and transparency. It is a just call. The costs
of doing business otherwise are known and such costs are no longer
accepted; it is a task that has to be embraced and a task that has to be
done. There is definitely a business case for anti-corruption and all
businesses, big or small, global or local, have to come together to set a
new path for all to take. The stage is set and is irreversible. It is a
global movement of creating a sustainable and inclusive global economy.
We therefore need to join hands to work towards reducing, if not
eliminating bribery and corruption in conducting business. There is no
other way.

Long-term financial success is now seen to go
hand-inhand with environmental stewardship, social engagement and
effective governance for sustainable development. Bribery and corruption
is no longer accepted as a way to conduct business. The current demand
for transparency, integrity and accountability is consistent all over
the world.

The United Nations Global Compact (Global Compact)
was launched in the year 2000 amidst the emerging debate on
globalisation. Business was and continues to be recognised as a key
stakeholder and driver in the international sustainable development
framework. The Global Compact, a multi-stakeholder initiative is the
world’s largest voluntary corporate sustainability initiative with more
than 8,000 business participants from developed, emerging and developing
countries. It has 80 local networks. With its ten universal principles
related to human rights, labor, environment and anti-corruption and
other platforms, the Global Compact calls on business to make
environmental, social and governance issues as important as financial
bottom lines. The adoption of the UN Convention against Corruption
(UNCAC) in 2003 led to the addition of the 10th Principle against
Corruption to stem the tide against corruption.

The year 2014 was a watershed as it marked ten years of business working collectively with the Global Compact, to work against corruption in all its forms including extortion and bribery.

Since its inception, the Global Compact’s role has been that of a facilitator and a convener. It convenes international actors – government, business, investors, civil society and academia – at a common platform to devise and discuss ways to further the corporate sustainability agenda and take concrete action. It is a platform for continuous improvement. Activities of the 10th Principle against Corruption manifest this convening role as well as action platform of the Global Compact in a most comprehensive manner. The 10th Principle globally advances its objectives through a working group comprising of anti-corruption champions from business, civil society, academia and international organisations, including the UN office on Drugs and Crime (UNODC), transparency international, the World economic Forum’s Partnering against Corruption initiative, and Global Compact local networks. With the crucial interplay between global and local, the 10th Principle working group provides continuous guidance to the Global Compact’s anti-corruption related activities. The working group meets regularly to identify priority work and discuss topics of relevance as well as issues that will help companies to embrace and embed anticorruption in their operations.

Over the years, various task forces comprising of members of the working group have developed a number of important generic tools and resources to guide companies in the fight corruption. Companies adopt the tools and resources taking into account their own specificities. the Global Compact tools and resources include Global Compact- transparency international reporting Guidance on the 10th principle against corruption, a Guide for anti-Corruption risk assessment and Fighting Corruption in Sports Sponsorship and hospitality. others are un Global Compact/UNODC e-learning tool on the unCaC and the upcoming guidance on Whistle-Blower policies and Collective action in Practice, to name a few.

Corruption is one of the biggest impediments to any economic or social development. the evil impacts of corruption are widely known. Private to private corruption is indeed a challenge. Small and medium enterprises bear the brunt of corruption with no leverage to fight back. The private sector can be a victim and can be a perpetrator of corruption. It is therefore of utmost importance for every effort to eliminate corruption to be done collectively. A company’s lone action, while important, may not be sufficient to fully deal with the challenges of bribery and corruption especially where it persists. That is why an african adage that says “if you want to go fast, go alone. If you want to go far, go together” is apt. One can do a lot by oneself but one can do the impossible with a great team. It is with this realisation and to multiply the effects of individual corporate action against corruption, companies are joining hands with like-minded companies and organisations to improve the way they conduct business and promote transparency. This type of partnership among multiple interested parties with common challenges and common objectives to turn the tide against a common foe, in this case bribery and corruption, is referred to as Collective action.

“If you want to go fast, go alone. if you want to go far, go together” Collective action can create a more stable business climate by enhancing access to markets and allowing companies to save revenue and profits that would otherwise be lost to bribery. Collective action-led solutions arrived at by multiple stakeholders have more credibility, ownership, acceptance and their implementation is more sustainable. But collective action is indeed not easy. It requires many things, the most important is trust among companies, which is difficult to secure. This is the dilemma. Global Compact Collective action projects in 5 countries are bold initiatives that have taken the bull by its horn by laying the foundation for solid collective efforts to address corruption challenges in the 5 countries.

The 5 countries collective action projects were launched in january 2011 to engage critical stakeholders in concerted efforts to eliminate corporate corruption. the 5 collective action projects were launched in Brazil, Egypt, india, nigeria and South africa with support from the Siemens Integrity Initiative. The 5 projects have been working with local businesses, governments, civil society and academia in these countries to create an enabling environment for dialogue, discussion and action against corruption. By facilitating ongoing dialogue between the private and public sector, the projects set the stage and offered an opportunity for a wide range of stakeholders to explore how collective action can create incentives for ethical business performance, and to discuss areas for further improvement. the Global Compact has proved to be the best incubator for these collective action initiatives.

Global Compact has leveraged these projects worldwide by disseminating information, raising awareness, calling for partnerships and collaborations through all possible mediums. These 5 collective action projects conclude in january 2015. however, the spark of action that has been ignited has the potential to shine brightly and incessantly with the commitment from business – whether local or global – and all key players in the international arena.

Brazil
Egypt
India
Nigeria
South africa

Collective action provides a framework for a coalition of like-minded stakeholders (industry peers, committed government officials & policy makers, civil society academics, and business associations) to act together for a common cause.

Business case For anti- corruption in India

Ms. Shabnam Siddiqui
Project Director,
UN Global Compact network india

According to World Bank estimates 0.5% of india’s Gross domestic Product (GdP) is lost due to corruption every year. in 2014 india ranked 134 on ease for Business index and 179 in terms of ease of Starting a Business amongst 189 nations in the world, the ranking being based on parameters such as dealing with construction permits, getting electricity, registering property, getting credit, protecting investors, paying taxes, trading across borders, enforcing contracts and resolving insolvency.

Correspondingly efforts on anti-corruption have taken a front seat since the past couple of years. The beginning of 1990s saw several international organisations introducing anti-corruption instruments to make the functioning of businesses clean. With globalisation and business opportunities spread across the globe, companies have to follow norms of several countries. Some of the strong global anticorruption convention and legislation, mentioned below, have led businesses to introduce anti- graft initiatives in their working across the world. however india still lags behind.

OCED Anti-Bribery Convention (officially Convention on Combating Bribery of Foreign Public Officials in international Business transactions) adopted in 1997, prohibits bribery of foreign officials, enhanced collaboration between law enforcement authorities of signatory countries and ban on tax deductibility of bribes to foreign public officials. These elements were borrowed by the other international legal instruments which were introduced after this convention namely united nations Convention against Corruption and UK Bribery act. Though india is yet to ratify the OECD anti-Bribery Convention, similar to the features of the convention, india has drafted Prevention of Bribery of Foreign Public Officials and Officials of Public International Organisations Bill, 2011 which is pending in Parliament.

the UK Bribery act on the other hand came into force in 2011 and is applicable to all companies registered in uK, its subsidiaries, as well as all non-uK companies trading in uK stock exchange. the Bribery act criminalises both the payment and receipt of a bribe and in the first of its kind of initiative the dealings with funds received as a result of bribery, could constitute a separate money laundering offense. The uniqueness of the act comes from the fact that it outlaws the facilitation payments that are permitted by several european countries.2 in the indian context, as yet, no case has been registered under the U K Bribery Act or any action taken to cater to its requirements. However, a large number of big indian conglomerates come under the purview of this new act which has all essential features of united nations Convention against Corruption (UNCAC) which India ratified in May 2011.

Finally, the tough global act, which has reaped the maximum gains vis-à-vis penalties, is the Foreign Corrupt Practices act (FCPA), a US legislation which prohibits United States companies and their employees, officers, directors and agents from paying or promising to pay bribes to foreign officials, political parties, candidates or their conduits to obtain or retain Business. The provisions of FCPA demand a comprehensive Compliance Program, along with a due diligence process for companies. In the last five years, the top ten cases of financial penalties under FCPA have fetched penalties to the tune of USD
4.4 billion4. FCPA, in the recent times, had incidence on the business operations in india wherein in march 2011, Wal-Mart, US Retail giant signed a joint venture with Bharti enterprises, an indian conglomerate to set up its stores in india. However, cases of bribery were reported. if charged guilty Wal-mart could have been penalized under the FCPA. Finding issues with the joint venture, Wal-mart in april 2014, decided to enter in the indian market alone5 and suspended its joint venture, loosing around 150 million in the course of three years.

The Bribery act criminalises both the payment and receipt of a bribe and in the first of its kind of initiative the dealings with funds received as a result of bribery, could constitute a separate money laundering offense.

Thus with the increasing extra territorial reach of the Foreign Corrupt Practices act of the US and the UK Bribery act, UNCAC compliance and reporting, OECD anti-Bribery Convention, Partnering against Corruption initiative of World economic Forum, and anticorruption Working groups of un Global Compact and Business 20, there is a larger emphasis on corporate governance, transparency, responsibility and accountability.

Even as companies are exposed to multi-jurisdictional laws and regulations, compliance and its monitoring have become an existential issue for most companies. India is trying to address the issue of corruption by making legislative changes, ratifying international conventions and adopting technology in its administrative functioning. However, merely rules and regulations will not address the issue. It is important that the business stakeholders are committed and come together to participate in the fight against corruption.

Business case for anti-corruption

the indian general election of 2014, fought on the plank of good governance and transparency, gave Mr. Narendra modi, the current Prime minister of india, a mandate for ensuring a clean and transparent governance agenda, a mandate that has triggered a new-found urgency in the efforts of corporate india to curb corruption in their operations.

Hong Kong-based mini vandePol, who heads the global compliance practice at international law firm Baker & Mckenzie observes that “Over the past five years, Indian companies politely listened when we spoke of tackling bribery and other compliance risks and told us that we don’t understand how things get done with the indian bureaucracy….Since the recent elections won on the premise of being corruption-free, a lot of companies are interested in starting afresh on building robust compliance systems to tap more markets and rope in new foreign investors.”6mini vandePol, has received advisory mandates from over a dozen Indian firms in the last six months from sectors such as defence, manufacturing and it.

Within the changing national and global scenario Global Compact network india proposes the Business Case for anticorruption in india. A business case for anticorruption assists in four ways: reduces legal liability, increases business opportunity, enhances company reputation and boosts the morale and trust of company personnel.

With the increasing extra territorial reach of the Foreign Corrupt Practices act of the US and the UK Bribery act, UNCAC Compliance and reporting, OECD anti-Bribery Convention, Partnering against Corruption initiative of World economic Forum, and anticorruption Working groups of un Global Compact and Business 20, there is a larger emphasis on corporate governance, transparency, responsibility and accountability.

Printed with the permission of Shabnam Siddiqui, Project director of UN Global Compact network india.

BCAJ Admin

ICAI and its members

1. Disciplinary Cases

(i) Case of RA
(Reported in Disciplinary Cases Vol-II – Part II published by ICAI – P.39)

The CIT (DR) made a complaint against the member that the company of which he was the Auditor had not made provision of wealth tax payable by the company. According to the complainant, the vacant land belonging to the company was valued by the valuer at Rs. 111 crore and the wealth tax liability worked out to a figure which was more than the net profit disclosed in the accounts. The auditor had not qualified the Audit Report on this issue.

The defence of the member was that the valuation report was neither obtained by him or by the company. It was obtained by a sister concern of the company and the member was not aware of the same when he gave the Audit Report. The book value of the land was only Rs. 11.74 lakh and the valuer had valued the land at Rs. 111 crore without giving any basis. Further, the member had relied on the management representation to the effect that the land was subject to numerous litigations and there were restrictions for construction. Therefore, the management was of the view that no wealth tax was payable.

The Disciplinary Committee (DC), after consideration of the facts of the case, has taken the view that there could be difference of opinion on the question of valuation of an asset and the same in no way can be construed to be a lack of due diligence or gross negligence. On this basis the member was held to be Not Guilty of Professional or other Misconduct.

(ii) Case of SSR
(Reported on Page 1 of Disciplinary cases published by ICAI Vol – II, BoD – Part II)

In this case the complaint was that the Member had accepted Tax Audit assignment of the company in which the complainant was the Auditor in earlier years without communicating with the complainant. The defence of the Member was as under:

(i) T he complainant who had conducted Tax Audit in earlier years had declined to continue Tax Audit for the year under complain.

(ii) The company had informed the complainant that they were searching a new firm of auditors for Tax Audit. The management informed the member that they had taken consent of the outgoing auditors for appointment of the Member as Tax Auditor.

(iii) The member had taken oral consent of the complainant for his appointment as Tax Auditor. He was informed that no fees of complainant were outstanding. He also submitted that he was not aware that written consent of the complainant was required to be taken.

The Board of Discipline (Board) noted that during the course of proceedings the complainant had made a request for withdrawal of the complaint. The Board also noted that the member had accepted his mistake with respect to non–communication with previous auditor in writing due to ignorance of the relevant provisions of C.A. Act. The Board held that although there was a technical flaw on the part of the member, yet considering the fact that the member had taken oral consent of the complainant, which fact was accepted by the complainant, and the complainant had made a request to withdraw the complaint, the benefit should be given to the member. On this ground it was held that the member was not guilty of professional or other misconduct.

(iii) Case of JCD.
(Reported on P.150 of Disciplinary cases published by ICAI VoL – II – BoD – Part II)

In this case the complainant firm was statutory auditors of the company for last 10 years. The complainant was also Tax Auditors of the company for all these years. For the year 2010-11 the complainant firm had completed Tax Audit and the same was not finalised because some points were pending compliance by the company. Since there was no compliance up to 25-09-2011, the complainant contacted the company when he was informed that the company had obtained the Tax Audit Report from another auditor. The complaint was that the member had accepted the Tax Audit assignment without prior communication with the complainant.

During the course of hearing before the Board, the complainant submitted that he had discussed the matter with the Member and as a good gesture, he wanted to withdraw the complaint. The Board noted that there was some miscommunication regarding the receipt of communication by the complainant from the Member which appears to have been sorted out. On this basis the Board held that the member was not guilty of professional or other misconduct.

2. Financial Report Review Board (FRRB)

In the publication of ICAI “Study on Compliance of Finance Reporting Requirements” following observations have been made by FRRB.

(i) Para 29 of AS-6 (Depreciation Accounting) (P.49)
In one case the accounting policy regarding depreciate was stated as under:

“In case of ‘X’ unit and ‘Y’ unit depreciation is calculated at straight line method and in all other units the WDV method has been followed.”

FRRB has referred to Para 29 of AS – 6 and observed that although the company has disclosed the depreciation methods adopted by it but the rates of useful life of such units are not disclosed. Being silent on this aspect cannot be construed that depreciation is charged at specified rates. Hence the above disclosure was not in accordance with the requirements of AS-6

(ii) Para 1 and 3.2 of AS-6 (P.50)
In the published accounts of some companies FRRB noticed that no depreciation on “Leasehold Land” was provided.

FRRB has taken the view, relying on Para 1 and 3.2 of AS-6, that Leasehold Land has limited useful life and, as such, it should be amortised as required by AS-6. In the above cases, this was not done and therefore the Depreciation Accounting was not in compliance with AS-6.

(iii) Para 28 of AS-6 (P.52)
In the case of a company, while accumulated depreciation for each class of assets was disclosed, the depreciation provided for the year against each item of asset has not been separately disclosed.

Referring to Para 28 (ii) of AS-6, FRRB has observed that under AS-6 “total depreciation for the period for each class of assets” should be disclosed. In this case, although accumulated depreciation was disclosed, no disclosure of depreciation for the year for each class of asset was not made. Thus the mandatory requirement of AS-6 was not complied with.

3. Applicability of Tax Rate in Quarterly Financial Results.

Facts:
A Central Public Sector Undertaking Company (Listed Company) is engaged in mining of bauxite, manufacturing of alumina and aluminium, generation of power in captive power plant for use in smelter plant and selling alumina and aluminium both in domestic and international market. Paid up share capital of the company is Rs.1,288.62 crore out of which 81.06% shares are held by the Government of India and 18.94% are held by the Public. As per the provisions of clause 41 of the Listing Agreement, the quarterly un-audited financial results are to be furnished to stock exchanges and be published in newspapers.

While computing the quarterly financial results, the company considers provision for tax expense by considering the computed taxable income upto that period based on the applicable tax rate for the said financial year.

The principles for recognition and measurement of tax expense are laid down in paragraph 29 (c) of AS 25 which states that the tax expense in each interim period is to be recognised based on the best estimate of the weighted average annual income tax rate expected for the full financial year.

As per the practice followed by the company consistently, at every quarter ending day, actual tax expense is provided based on the financials/ performance upto that period.

Query
In the above background, the Company has sought opinion of the EAC on the following issues:

(i) Whether the principles mentioned in AS 25, particularly, the principles for recognition and measurement of tax expense as laid down in paragraph 29(c) of AS 25 would apply to unaudited quarterly financial results prepared to comply with clause 41 of Listing agreement which are subject to limited review by the statutory auditors.

(ii) Whether the existing practice of recognising provision for tax expense by considering the computed taxable income for the relevant period based on applicable tax rate is in contravention of the provisions of AS 25.

EAC opinion:
After considering, clause 41(IV)(f) of the Listing Agreement and paragraphs 1, 2, 27 and 29 of aS 25, the Com- mittee noted that clause 41 of the Listing agreement specifically requires that quarterly and year to date results should be prepared in accordance with the recognition and measurement principles laid down in AS 25. The Committee also noted that the Guidance note on applicability of aS 25 to interim Financial results, issued by the ICAI does not lay down any new accounting principle and is only providing guidance on the application of a mandatory Standard (viz. AS 25). Therefore, the Committee is of the view that the company should follow the requirements of aS 25 as explained in the Guidance note and should apply the recognition and measurement requirements as contained in paragraph 29 (c) of AS 25 to the interim financial results presented under clause 41 of the Listing agreement. Thus, whether or not the Guidance note is binding or is recommendatory in nature is not relevant as the relevant requirements of the Standard are binding on the company. The Committee further noted that paragraph 29(c) of AS 25 requires that income tax expense should be recognised in each interim period based on the best estimate of the weighted average annual income tax rate expected for the full financial year.

The Committee also noted from the Facts of the case that while computing the quarterly financial results, the company considers provision for tax expense by considering the computed taxable income upto that period based on the applicable tax rate for the said financial year. On the basis of the above, the Committee is of the view that the accounting practice of the company to provide for tax expenses at the quarterly/interim period results based on the applicable tax rate for the said financial year would be correct provided such tax rate is the rate that would be applicable to the expected total annual earnings of the company for the whole year, that is, the estimated average annual effective income tax rate. In this regard, the Committee has pointed out that the tax expense for each interim period is not to be determined on the basis of average of estimated annual tax expense rather it is to be determined on the basis of estimated average annual effective income tax rate applied to the portion of income earned in the interim period. Thus, if in an interim period, there is a profit but in other interim periods, there are losses resulting into nil taxable income for the financial year, tax expense in each interim period will be provided for by applying estimated average annual effective income tax rate to the income (profit or loss) of those interim periods. In other words, if there are profits in the first quarter, the company has to provide tax liability in the first quarter at the appropriate estimated average annual effective income tax rate, which would get reversed in subsequent quarters if there are losses. For the purpose of calculating the estimated average annual effective income tax rate, guidance may also be taken from the Guidance note on measurement of income tax expense for interim Financial reporting in the Context of AS 25, issued by the ICAI.

The existing practice of recognising provision for tax expense by considering the computed taxable income for the relevant period based on applicable tax rate for the said financial year would be correct provided such tax rate is the rate applicable to the expected total annual earnings of the company for the whole year, that is the estimated average annual effective income tax rate.
[Pl. refer page nos. 1092 to 1095 of the C.A. journal – February, 2015]

4. ICAI News
(Note: Page Nos. given below are from CA Journal for February 2015

Group

no. of
candidates appeared

no. of
candidates Passed

Percentage
of Pass

Both

36,254

2,983

8.23

Gr. I

64,972

15,208

23.41

Gr. II

66,552

6,830

10.26

(i) November, 2014 Final examination results (P.1158)

First Rank : Vijendra Aggarwal, Gurgaon (69.75%)
Second Rank : Ms. Pooja R. Parekh,ahmedabad (69.50%)
Third Rank : Santosh P. Nankani, nandubar(69.13%)
Ms. nikita Goel, howrah (69.13%)

(ii) November, 2014 iPCC Examination

Group

no. of
candidates appeared

no. of
candidates Passed

Percentage
of Pass

Both

47,795

2,963

6.20

Gr. I

1,23,488

17,603

14.25

Gr. II

1,04,435

15,982

15.30

(iii) CPT Examination – december 2014 (P.1157)

Gender

appeared

Passed

Percentage

Male

63,541

9,060

14.26

Female

37,416

5,820

15.55

Total

1,00,957

14,880

14.74

(iv) late Shri rameshwarji Thakur

One of our former Presidents, Shri Rameshwarji Thakur, passed away on 15th january 2015 at the age of 86. He was our President in 1966-67. He was also a Freedom Fighter and an active member of our profession. He held the prestigious positions as union minister of State and later as Governor of madhya Pradesh, odisha, andhra Pradesh and Karnataka. We all condole his death and pay our respectful homage to the departed soul. We pray that the departed soul may rest in peace.

(v) New chapters of ICAI (P.1043)
Following new oversees chapters of iCai have been established in February, 2015.

(a)    24th Chapter at Vancouver (Canada)
(b)    25th Chapter at Bangkok (thailand)
(c)    26th Chapter at dar es Salam (tanzania)

(vi)    revision in rates of Stipend to Articled assistants:

By notification dated 23-01-2015 issued by ICAI the rates for stipend payable by Chartered accountants to their articled Assistants have been revised as under:-

normal Place of Service of
articled assistants

Stipend
payable p.m

First Year (`)

Second

Year (`)

remaining

Period (`)

(a)

Cities/Towns
with Population of above 20 Lacs

2,000

2,500

3,000

(b)

Population
be- tween 4 Lacs

and 20 Lacs

1,500

2,000

2,500

(c)

Population
below 4 Lacs

1,000

1,500

2,000

(vii) Our New President and Vice-President:

ICAI Council has elected Shri Manoj Fadnis (Indore) as President and Shri Devaraja Reddy M (Hyderabad) as Vice-President for the year 2015-16. Our greetings and best wishes to both for a successful term of office.

BCAJ Admin

Part C Information on & Around

Mumbai VC Rajan Welukar spent without sanction:
Rajan Welukar has used over Rs. 12 lakh of Mumbai University’s funds to pay lawyers defending his appointment as the varsity’s vice-chancellor in the Bombay High Court, a Right to Information (RTI) request has revealed. Activist Anil Galgali, who obtained the details, alleged that Welukar has roped in lawyers who were not part of the university-approved panel of legal experts, and used varsity funds to pay their fees without official sanction.

“The university’s funds are meant to be used for the benefit of students. In fact, there are so many issues that require financial consideration,” Senate member Sudhakar Tamboli said. “The case against Rajan Welukar questions his appointment as the vice-chancellor, and not the decisions he has taken. Why is the university then bearing his legal expenses?”

Registrar Khan, however, said that the varsity was also a party to the legal challenge. “The case is also against the University of Mumbai. We have taken the management council’s approval for legal expenses,” he said.

An RTI enquiry revealed 165 pilots were found to have high blood alcohol levels between Jan 2009 and Feb 2014:
According to a Right to Information (RTI) enquiry filed by a serving Jet Airways pilot, between January 2009 and February 2014, 165 pilots in the country were found to have high blood alcohol levels.

“It is important to take post-flight breath analyser test because a pilot will be considered as having tested positive on skipping the test. It will not be possible to explain that the test was missed inadvertently,” the Jet Airways pilot said. He added that the airlines was currently hiring additional doctors to carryout the checks.

Twelve crew members of an Air India flight from London to Mumbai have been sent on compulsory leave for 15 days as punishment for not undergoing post-flight alcohol check implemented by Directorate General of Civil Aviation (DGCA) recently.

As required under tougher rules for alcohol tests with effect from July 2014, the 12 crew members, including six air hostesses, fails to report for the post-flight breath analyser checks on their return to Mumbai from London last month. Not reporting for tests as per the modified rules is considered as being alcohol-positive.

Centre spent Rs. 320 cr on R-Day last year:
Ever wondered how much the Republic Day ceremony at Rajpath, with all its smart marches, colorful tableaus and performing artists, costs to put together? A query under the RTI Act has elicited a response from the Central Public Works Department (CPWD) that says the Centre spent Rs. 320 crore in the four-hour parade in 2014.

Over the years, the expenses on Republic Day celebrations have risen quite substantially. In 2001, the expenditure was Rs. 145 crore.

The Rs. 145 crore that was incurred by the Centre in the financial year 2000-01 rose to Rs. 226 crore in 2003-04. For the next three years, though, expenditure decreased somewhat, in step with a not-so-healthy economy. In 2006- 07, the government spent Rs. 149 crore on the celebrations.

The budget for the R-day function was then increased by 34.16% in 2007-08, and the Centre spent Rs. 227 crore that year. In 2009-10, it went up to Rs 285 crore.

There were slight decrease in the budget in 2011 and 2013, but the Centre ended up spending robust Rs. 320 crore in 2014. In comparison to the amount spent in 2001, the budget for the parade last year shot up by 54.51%.

Man refuses to stay standing, arrested:
The Tamil Nadu State Information Commission (TNSIC) had an RTI applicant arrested for taking a chair in front of a two-member bench hearing his appeal. There is no rule preventing an RTI applicant from sitting during an appeal.

Chief information commissioner K. S. Sripathi and commissioner S. F. Akbar had NGO Legal Panchayat Movement president Siva Elango arrested as he sat even as they refused to accede to his request for a chair during the hearing of his appeal against rejection of an RTI application.

Elango was booked under IPC Section 353 (preventing a government servant from discharging his duty), 294 (b) (obscenity) and 506 (1) (criminal intimidation).

Police presented Elango before a magistrate, which remanded him in judicial custody for 15 days.

levitra

BCAJ Admin

Part A DECISION OF H.C. & CIC

Information, Section (2):
The Appellant, Shri Ramesh Kumar, submitted RTI application dated 20th September 2012 before the Central Public Information Officer (CPIO), Punjab National Bank, Lucknow; seeking information regarding challans through which Income Tax had been deducted from his salary and was deposited with the Income-Tax Department through wrong PAN number etc., through a total of 5 points.

The appellant preferred an appeal dated 10th November 2012 to the first appellate authority (FAA) when he did not receive any information from the CPIO concerned within stipulated time period. Vide reply dated 27th November 2012, CPIO furnished information on point no. 1 and informed on point nos. 2 to 5 that the requested information was 5 to 6 years old, due to which they were facing problems in retrieving the same, and they will furnish the same one they retrieve it. Vide order dated 17th December 2012, FAA held that CPIO has already furnished the information vide letter dated 27-11-2012 and also upheld the CPIO’s decision.

The appellant submitted that he is an ex-employee of the public authority and he retired on 31-3-2012. The Incometax Department had contacted the appellant information him that the public authority had failed to deposit his Income-tax for the years 2006-2011, as they had quoted wrong PAN number in the Form 16 of the appellant. Hence, he sought information under the RTI Act, about the details of the income tax deductions and deposit challan copy for the years 2006-2011. However, the CPIO had only provided information pertaining to years 2009-2011. The information for the year 2006-2009 had not been provided. The appellant submitted that the information would help in settling up the tax issues with the Income Tax Department.

In the second appeal before CIC, the appellant did not inform the bank about the wrong PAN number when the matter came to their notice they corrected the PAN number and submitted revised I.T. return. The tax deducted was not deposited on an individual basis but in consolidated manner (branch wise) by the public authority, hence information sought is not held by the office in the format sought in the RTI application. The copies of month wise bank certificates can be provided to the appellant for the years 2006-2011. They have provided all Form 16 asked for by the appellant. The challan copies for depositing the tax were not available so they provided the copies of acknowledgement for that period.

The CPIO’s submissions are accepted by the Commission that information as held has been provided. However, the CPIO is directed to provide additional information to the appellant regarding the copies of month wise certificate of Income-Tax deducted for the years 2006-2011 within one week of the receipt of the order of the Commission.

[Shri Ramesh Kumar vs. Punjab National Bank, Lucknow & Ors. in CIC/VS/A/2013/001377/MP, in CIC of Delhi dated 23rd July 2014]

levitra

BCAJ Admin

Ethics and U

Procedure of Enquiry (Continued) Arjun

(A) — Where is this Lord Shrikrishna gone? He says he is omnipresent. But often makes me wait! Shrikrishna

(S) — Arey, Arjun. You have already reached! Sorry, I was held up.

A — Don’t worry. We are quite used to such waiting in the tax department. Anyway, you were explaining to me the procedure for enquiry of disciplinary cases.

S — Yes. Your friend was to apply for extension of time to send a reply. Did he do that?

A — Yes, he did. But there is no response from the Institute.

S — That does not mean that he should just wait for reply and do nothing till then. Usually, they do grant additional time of 15 to 20 days.

A — Ok. He has prepared some reply. He is alleging that the complainant himself is a bad person and the complaint is frivolous.

S — Y our friend must be feeling that he had helped the complainant in the past, and now the complainant is acting vindictively! Right?

A — Yes, precisely. How can he complain when he is himself a defaulter? One should come with clean hands before the Court for justice.

S — You are right. But that is in general jurisprudence. Here, your Council has no jurisdiction over nonmember.

A — So, anybody can complain? The Council cannot do anything to outsiders? They will catch hold of only the members?

S — Unfortunately, yes. There are other fora where you can seek justice by retaliating. But your Council is concerned only with the good behaviour of members.

A — Why so?

S — Because the Council has to uphold the reputation of the whole profession. Misconduct of any member adversely affects the image of the profession and it is harmful to all other members.

A — I appreciate what you mean. Then what should my friend do?

S — He should write a proper reply to the point. Each and every point alleged by the complainant should be tackled systematically. One should write objectively and not emotionally. All paragraphs should be serially numbered.

A — So, a counter-attack on the complainant will not help?

S — Exactly. You may point out in a decent language as to how the complainant himself is a wrong-doer. But emphasise that you have acted properly. That is what the Council wants to see.

A — So his errors do not justify mine, right?

S — Obviously. Otherwise, how will the profession have credibility?

A — OK. What happens after he sends the explanation?

S — That explanation is simply forwarded to the complainant. He gets an opportunity to send a rejoinder.

A — Why? Even if my reply is convincing, it has to go to him?

S — Yes. They cannot close it merely on your explanation.

A — Ok. Then to his rejoinder, I can send sur-rejoinder? S — N o. You have no second inning.

A — Ah! This is unfair.

S — Under the new system, you have no further opportunity at this stage. Once these three documents are received, that is, the complaint, your reply and rejoinder, then only the Directorate examines the case.

A — Oh. Nothing till then!

S — But while scrutinising, if they want any further information or document, they will write to either party and get it.

A — After examining the case, they give the final verdict?

S — No. The Director forms what is called as a prima facie opinion; as to whether you are ‘prima facie’ guilty; or not guilty.

A — So, it is the Director who decides this? That means, the justice is left to the bureaucrats?

S — No. The Director has to present the prima facie opinion before the Board of Discipline if it is Schedule I offence.

A — And to Disciplinary Committee if it is 2nd Schedule. Correct?

S — Yes. And if mixed one, then also to DC. BOD or DC may concur or not concur with the prima facie opinion. Or even partly agree or disagree on certain items.

A — What I have understood at this stage is that your first reply itself should be as exhaustive as possible.

S — It should be supported by documentary evidence also.

A — Then what?

S — If you are not prima facie guilty, you receive an intimation that your case is closed. Otherwise, they inform you that there will be a detailed enquiry.

A — I think, this much is enough for the time being. I will explain to my friend all that you have told me. But I need to know more. Next time, you please explain to me how the enquiry is conducted. But please give your blessings to my friend so that he will not be held even prima facie guilty.
S — Tathaastu!

Note: This dialogue is based on the procedural rules contained in Chartered Accountants (Procedure of Investigations of Professional and other misconduct and conduct of cases) Rules, 2007 published in official Gazette of India dated February 28, 2007 (‘Enquiry Rules’).

levitra

BCAJ Admin

ICAI and its members

1. Disciplinary Cases Disciplinary Committee (DC) of ICAI has decided the following cases which are reported in ICAI publication viz., “Disciplinary Cases” Vol. I Part – I and II

(i) Case of G.K.

In this case, Mr. G.K. used to audit the accounts of certain group companies and give statutory audit reports from 01-10-2005 to 26-09-2009. He did not reveal to the company management that his name was removed from Register of Members maintained by ICAI. It was further alleged that he had connived with one of the Directors of the company to defraud the other Directors.

The D.C. found that the name of Mr. G. K. was removed from the Register of Members for non payment of Fees and therefore he was not entitled to audit or give statutory audit reports. Therefore, Mr. G.K. had contravened the provisions of sections 8 and 24 of the C.A. Act. Section 24 provides for prosecution of such person and court can levy fine upto Rs. 5,000/- and under certain circumstances award punishment by way of imprisonment upto 6 months.

However, under the present proceeding, Mr. G.K. was held to have committed other misconduct under Clause (2) of Part IV of First Schedule and Clause (1) of part II of second schedule of C.A. Act on the first charge. As regards the second charge the D.C. held that this was not proved. The D.C. awarded punishment of removal of the name of Mr. G.K. from membership for 3 months (Reported on Pages 20 – 27 of Part I of Vol.I)

(ii) Case of V.K.

In this case, the member advised his client that capital gains tax of Rs. 6.91 lakh was payable as Advance Tax for A.Y. 2007-08. The member undertook to deposit Advance Tax on behalf of his client. The client paid Rs. 6.91 lakh to the member who deposited the cheque in his account. The member deposited only Rs. 0.91 lakh as Advance tax on behalf of his client. He, however, added the figure of Rs. 6 lakh in the Bank Challan to defraud the I.T. Dept. In other words, the member had misappropriated Rs. 6 lakh and cheated his client. When this fact came to the knowledge of his client, the member refunded the amount to his client with interest. He has also paid interest charged by the I.T. Dept.

The D.C. has found the member guilty of professional misconduct under Clause (10) of part I of second schedule of C.A. Act. The D.C. has held that amount collected from client for payment of Advance Tax was used by the member for his personal purpose in violation of the above clause. The fact that the member has returned the amount with interest can not absolve the member from his guilt.

On the consideration of the facts of this case, the D.C. has awarded punishment to the member and directed that his name be removed from the Register of Members for a period of 2 years. Further, the D.C. has imposed a fine of Rs. 50,000/- to be deposited within 90 days. (Reported on pages 28 – 36 of Part I of Vol.1).

(iii) Case of Mr. V. K. D.

In this case, the Reserve Bank of India (RBI) reported to ICAI that the member (Statutory Auditor of NBFC Company) has submitted a certificate on 12-04-2007 stating that the company continues to undertake the business of NBFC requiring it to hold the certificate of registration u/s. 45-IA of the RBI Act. The RBI has stated that according to company’s letter dated 26- 03-2007 it had informed RBI that it had yet to start the commercial business. Hence, according RBI the Certificate of the Member was wrong. The charge against the Member was about gross negligence under Clause (7) of Part I of second schedule of CA Act.

The defence of the member was that he issued the certificate dated 12-04-2007 in response to the request letter from Company, whereby, he was requested to certify whether the company continues to carry on principal business of NBFC as on 31-03-2007. As per RBI press release No. 1998-99/1269 dated 08-04-1999, the Company’s financial assets should be more than 50% of its total assets and income from financial assets should be more than 50% of gross income. Both these tests are required to be satisfied as the determinant factor. It may be appreciated that the Respondent was not required or intended to verify and certify generally whether the Company has commenced the commercial business of which Respondent denies any knowledge or involvement.

The D.C., after hearing the Member and after verifying the documents produced by him, held that the company was meeting with criteria of NBFC as prescribed by RBI. It was also noted that the company was a private company and did not require to obtain business commencement certificate. Therefore, when the criteria of investment in Financial Assets and income from such assets was met and the Member gave the certificate keeping in mind the going concern concept. No mala fide intention was established. Therefore, giving benefit of doubt to the member, it was held that he was not guilty of professional misconduct. (Reported on Pages 6-12 of Part II of VoL-1).

2. Some Ethical Issues

The Ethical Standards Board of ICAI has given answers to some Ethical Issues. These are published on Pages 1171 – 1172 of CA Journal for February, 2014.

(i) Issue No.1

Whether an auditor is required to provide to the client or to main auditor of the Head Office of the same enterprise access to his audit working papers?

Working papers are the property of an auditor. An auditor is not required to provide the client access to his audit working papers. The main auditors of an enterprise do not have right of access to the audit working papers of the branch auditors, except in case it is required by the Regulatory norms.

(ii) Issue No.2

Whether Joint Auditors can demand the working papers of one another?

The working papers are the property of an auditor. Therefore, no joint Auditors can demand the working papers of the other Joint auditor.

(iii) Issue No.3

Whether a joint auditor will be responsible for the work done by other joint auditor?

Council direction under Clause (2) of Part 1 of the Second Schedule to the C.A. Act prescribes that in respect of audit work divided among the joint auditors, each joint auditor is responsible only for the work allocated to him, whether or not he has prepared a separate report on the work performed by him. However, on the other hand, all the joint auditors are jointly and severely responsible for the work which is not inter se divided among the auditors.

(iv) Issue No.4

Whether the statutory auditor can accept the system audit of same entity?

The statutory auditor can accept the assignment of a system audit of the same entity, provided it did not involve any scrutiny/review of financial data and information.

3. EAC Opinion:

Treatment of Mark to Market Losses on Principal only Currency Swap:

Facts:

A company is engaged in providing port and related infrastructure services (including SEZ) to various port and SEZ users.

The company has stated that when it approaches banks for long term loans to fund the capital expenditure for port project, it has the option of seeking a foreign currency loan (FCL) or a Rupee loan. In case FCL is not readily available, the company agrees to borrow Rupee loan. The sanction letter of bank could also provide the company the option to convert the undrawn portion of Rupee loan into FCL at a later date. Further, along with the sanction of Rupee loan, banks also sanction derivative limits so that the company could utilise the same for swapping drawn and outstanding Rupee loan amount into foreign currency facility. According to the company, it enters into derivative transaction by way of Principal Only Swap (POS) to the extent of outstanding Rupee loan in its balance sheet. As per the company, though POS transaction is an off balance sheet item, the same cannot be entered into unless there is an underlying outstanding loan in the balance sheet. Hence, it is clearly inter-linked to a balance sheet item.

The company has further stated that POS transaction with bank involves notional swap of the company’s Rupee loan with USD. As a result, the company has USD exposure through POS. The tenor of underlying Rupee loan of POS contract is same and notionally, the company swaps the Rupee loan with the USD loans. The bank which enters into the POS actually buys Rupee from the company and sells it USD. However, no cash flow takes place, no entries are passed in books and details of outstanding transaction are disclosed in the financial statements. Thus, effectively, what was a Rupee obligation of the company becomes a USD obligation with the POS.

According to the company, all POSs are monitored on a regular basis and, periodically, the company has interest inflow on account of differential interest rate on Rupee and USD borrowings. As per RBI directives, POS contracts are cancellable but once cancelled, cannot be renewed during tenure of the term loan and, hence, it is possible to have POS till the maturity of Rupee loan.

The company has also stated that for such transactions, bank pays Rupee interest rate of, say 11% and the company pays USD interest rate of, say, 5%. The difference is called ‘carry’. This means that if Rupee interest rate goes below 11% the company gets benefited as ‘carry’ remains same and vice versa, but the company has exposure on account of variation in INR/USD exchange rate. Effect of USD increase is still exchange rate difference and is still to be accounted for by way of Mark to Market (MTM) loss/gain. But, this is, again, only a memorandum (notional), because, just as the exchange rate differences on External Commercial Borrowings (ECBs), this also does not actually materialise till the loan is actually paid off.

The question arises about accounting for MTM losses/gains on such POS transaction along with receipt of ‘carry’ income at regular intervals in accordance with the Ministry of Corporate Affairs (MCA). Notification dated 7th December, 2006 and subsequent extension vide Notifications dated 31st March, 2009 and 29TH December, 2011.

Query:

On these facts, the company has sought the opinion of the Expert Advisory Committee as to whether the mark to market losses on POS can be treated as exchange rate difference and, accordingly, can be recognised as per paragraphs 46 and 46A of AS11, notified by the Central Government.

EAC Opinion:

The Committee is of the view that the issue raised by the Company requires examination from two angles – firstly, whether the Rupee loan taken by the company becomes a foreign currency liability by the existence of POS transaction or whether it should, in substance, be treated as a foreign currency loan by the existence of POS transaction and, secondly, whether the POS transaction can be considered to be a foreign currency transaction within the scope of AS11.

A reading of AS11 indicatesthataccountingtreatment for only those forward exchange contracts which are entered into for hedging foreign currency risk where the underlying transaction is denominated in a foreign currency, or for trading or speculation purpose. The Committee notes from the Facts of the Case that the underlying transaction is a Rupee loan that does not give rise to any foreign currency risk. It is the POS transaction in the Company’s case that exposes the company to foreign currency risk rather than mitigating the same. Thus, the purpose of the POS is not hedging any foreign currency risk. The POS is not held for trading because the company is not a trader in foreign exchange. There may be speculation, if there is no underling transaction or if there is an underlying transaction but the intention is to speculate the movement in foreign exchange rate and to cancel the POS for booking profit at the opportune time. In the Company’s case, the POS has an underlying transaction viz., Rupee loan. But, the company’s intention is not to speculate the movement in foreign exchange rate and to cancel the POS at the opportune time for profit booking. This basic purpose of the POS transaction in the Company’s case is to take advantage of the difference between Rupee interest rate and USD interest rate. Its purpose is saving in interest cost though it exposes the company to foreign risk. The mere fact that the company might have considered likely foreign exchange loss in making the decision to enter into the POS transaction, in itself, does not make the POS as held for speculation purposes. Thus, the POS is not held for hedging any foreign currency risk or trading or speculation purposes. Hence, the POS is not a forward exchange contract within the scope of AS11 and therefore, is not a foreign currency transaction within the scope of AS 11,

Examination

Group I

Group II

Both Groups

(a) FINAL

Appeared

Passed

Appeared

Passed

Appeared

Passed

Nov.2013

51728

2932

5.67

54,786

4,026

7.35

32536

1013

3.11

May 2013

45822

6319

13.79

50,354

9,389

18.65

27,556

2764

10.3

Nov.2012

48320

13193

27.30

51,906

11,341

21.85

29,339

3804

12.9

(b) IPCC

Nov 2013

122253

23,342

19.09

117834

21076

17.88

62033

5038

8.12

May 2013

124310

24,161

19.44

112465

16675

14.83

70504

8428

11.73

Nov.2012

100494

25269

25.14

96,181

20326

21.13

52531

5835

11.15

4. ICAI News

(Note: Page Nos. given below are from C.A. Journal of February, 2014).

(i) Extension of Last date for complying with CPE Hours

ICAI has notified that the last date for complying with requirement of CPE hours for the Block Period of 2011-2013 has been extended from 31-12-2013 to 31-03-2014 (ICAI Website).

(ii) C A Examination Results

The Results of CA examination which have been recently declared are very strict. This will be noticed from the following comparative figures. (ICAI Website).

(iii) New Branches of ICAI

Following New Branches of ICAI have been opened on 3rd January, 2014 (P.1280-1282).

(a)    Dibrugah (EIRC)
(b)    Tinsukia (EIRC)
(c)    Karimnagar (SIRC)
(d)    Warangal (SIRC)
(e)    Ongole (SIRC)

(iv) Get CA Journal on Mobile

CA Journal will be available on ios (I pad/I Phone etc) and Android Devices from 01-03-2013 (Refer P.1279).

BCAJ Admin

Ethics and u

Certification of projections:

Arjuna (A) – Oh God! I am really fed up. I feel I should not sign any document at all.

Shrikrishna (S) – What happened? You have been signing so many things – reports, certificates and what not!

A – Yes. But that is inviting trouble for myself.

S – If you sign diligently and carefully, why should there be any trouble. That is your very profession. That is your bread and butter.

A – I know. But people expect us to sign anything and everything under the sun! Regulators, Bankers make us sign any kind of certificate.

S – If you are not comfortable, don’t sign it. Who is forcing you to do so?

A – The relationship, Bhagwan, our relationship with client creates pressure on us.

S – Don’t make general statements. What exactly is your worry?

A – Now see, many of our clients apply for bank loans. They submit project reports. Quite often, it is prepared by us only.

S – Nothing wrong about it. Then?

A – Bankers insist that we should sign the projections.

S – How can you certify the projections? You should refuse.

A – That’s the difficulty. We CAs have not been taught to say ‘No’ at all. We try to help the client anyhow.

S – True. But client also should appreciate your difficulty.

A – That does not happen. It is a one-way traffic. They always expect us to compromise and oblige.

S – But they never reciprocate! Is it not?

A – You said it! The client sits on our head because he is impatient for the loan. The Banker also pressurises us. And many of us succumb to it.

S – Client takes the loan and in due course, becomes an NPA. Right?

A – Yes. And then the first scapegoat is the chartered accountant! Banks routinely file complaint to our Institute. We are trapped!

S – So clients emotionally blackmail you that they are not getting the loan because of your unwillingness to sign. In such a case, you should clearly tell them that your Institute does not permit you to sign any projections.

A – But I don’t understand why bankers insist on our doing irregular things?

S – Because that helps them save their skin. If anything goes wrong, they can pass the blame on you people.

A – But why can’t we sign the projections?

S – You are asking an elementary question. Paarth, you can certify only what is factual. That is the very meaning of ‘certificate’. Projections are essentially based on assumptions; and are always uncertain. If you venture to do that, you will be a ‘fortuneteller’ and not a chartered accountant.

A – Tell me, is there is no way out at all? Because if I refuse to sign, client says he can obtain signature from hundreds of other CAs.

S – You people lack unity. That is why people take you for a ride. The quacks bring disrepute to your profession. They can sign anything.

A – And that spoils our relationship with the client. He feels unhappy with us!

S – You should read and understand AAS-35 – now SAE 3400. It does permit you to sign projections if you fulfil certain conditions.

A – What are those conditions?

S – I can’t explain all the details. But broadly, the assumptions should be realistic and reasonable. They should be clearly stated. Even hypothetical assumptions should be consistent with the purpose of the information.

A – What other things should we see?

S – If any study or survey is done by some agency, you should obtain the report. You should also study the track record and history of the entity. Moreover, projections should be restricted to a reasonable time period in future. Further, you should also judge the management’s competence to prepare proper projections.

A – I think I should also read that SAE 3400 and show it to the client.

S – Most important, you should ensure a clear engagement letter and also insist that all the representations of the management are in writing and signed by them.

A – My friends at district level areas find it all the more difficult to tackle such situations. They have very limited work opportunities and have to compromise on many things.

S – And there is often an unhealthy rivalry.

A – I feel the Council or its Committee should take up the matter with the managements of the Banks and ask them not to insist on such things.

S – Yes. And your local associations and study circles also can make representations to the Banks.

A – There is yet another problem. One bank asked a CA to give a certificate that all statutory dues have been paid. How can one certify that? In our country, there are hundreds of laws. It is impossible to visualise all of them.

S – Very true. In such cases, you should specify the various laws that are commonly applicable to such entities and restrict your certificate to only those statutes. There cannot be a generalised certificate. Even under CARO, only specific laws are covered.

A – But tell me. If one gives such certificate, who is going to see that? Banks say it is just for their record.

S – So long as everything is smooth, there is no problem. But once the unit starts defaulting in servicing the loans, banks will take out all these certificates. And it is a serious misconduct. It is gross negligence as well as lack of due diligence. Many disciplinary cases are coming up on this count! And not following the accounting and auditing standards is clearly a misconduct.

A – I will take up this issue in our study circle and do something concrete to save our fellow-members.

S – Good. That is why you are so dear to me!

Om Shanti!

NOTE :

The above dialogue between Shrikrishna and Arjun deals with the Clause (3) of Part 1 of the Second Schedule which are often invoked alongwith Clause (7). It states that:

A chartered accountant in practice shall be deemed to be guilty of professional misconduct, if he-

Clause (3): permits his name or the name of his firm to be used in connection with an estimate of earnings contingents upon future transactions in a manner which may lead to the belief that he vouches for the accuracy of the forecast.

levitra

BCAJ Admin

Glimpses Of Supreme Court Rulings

17. Deemed dividend – Section 2(22)(e) – Decision of the Supreme Court in C.I.T., Delhi-II vs. Madhur Housing and Development Company (2018) 401 ITR 152 (SC)

National Travel Services vs. CIT (2018) 401 ITR 154 (SC)

The Assessee, a partnership firm consisted of three partners, namely, Mr. Naresh Goyal, Mr. Surinder Goyal and M/s. Jet Enterprises Private Limited having a profit sharing ratio of 35%, 15% and 50% respectively. The Assessee firm had taken a loan of Rs. 28,52,41,516/- from M/s Jetair Private Limited, New Delhi. In this Company, the Assessee subscribed to the equity capital of the aforesaid Company in the name of two of its partners, namely, Mr. Naresh Goyal and Mr. Surinder Goyal totaling 48.19 per cent of the total shareholding. Thus, Mr. Naresh Goyal and Mr. Surinder Goyal were shareholders on the Company’s register as members of the Company. They held the aforesaid shares for and on behalf of the firm, which happened to be the beneficial shareholder.

The question that arose before the Supreme Court in this appeal was, as to whether section 2(22)(e) of the Act was attracted inasmuch as a loan had been made to a shareholder, who was a person who was the beneficial owner of shares holding not less than 10% of the voting power in the Company, and whether the loan was made to any concern in which such shareholder was a partner and in which he had a substantial interest, which is defined as being an interest of 20% or more of the share of the profits of the firm.

Before the Supreme Court, the assessee relied upon the judgement of the Delhi High Court in CIT vs. Ankitech Private Limited (2012) 340 ITR 14 (Del) in which it was held that the expression “shareholder” would mean a registered shareholder and also placed on an order dated 05.10.2017 passed by the Supreme Court in Civil Appeal No. 3961 of 2013 [C.I.T., Delhi-II vs. Madhur Housing and Development Company] in which the Supreme Court had expressly affirmed the reasoning of the Delhi High Court and contended that it was clear that the firm, not being a registered shareholder, could not possibly be a person to whom section 2(22)(e) would apply.

The Supreme Court, after hearing the parties was of the view that Ankitech’s case was wrongly decided. According to the Supreme Court, “shareholder”, post amendment, had only to be a person who is the beneficial owner of shares. One cannot be a registered owner and beneficial owner in the sense of a beneficiary of a trust or otherwise at the same time. It was clear therefore that the moment there is a shareholder, who need not necessarily be a member of the Company on its register, who is the beneficial owner of shares, the section gets attracted without more. To state, therefore, that two conditions have to be satisfied, namely, that the shareholder must first be a registered shareholder and thereafter, also be a beneficial owner was not only mutually contradictory but was plainly incorrect.

The Supreme Court was prima facie of the view that the Ankitech judgement (supra) required to be reconsidered, and therefore, directed that the matter be placed before the Hon’ble Chief Justice of India in order to constitute an appropriate Bench of three learned Judges in order to have a relook at the entire question.

Note: This issue had been discussed in Closements in the BCAJ published in December, 2017 and January, 2018.

18. Wealth-tax – Valuation of asset – Section 7(2)(a) is discretionary and enabling provision to Wealth Tax Officer to adopt the method as laid down in section 7(2)(a) for a running business, but the above enabling power cannot be held as obligation or shackles on right of Assessing Officer to adopt an appropriate method

Bimal Kishore Paliwal and Ors. vs. Commissioner of Wealth Tax (2017) 398 ITR 553 (SC)

G.D. & Sons of which firm the Appellants were partners, purchased land and building in semi-constructed condition on 04.06.1965 for a sum of Rs. 8,00,000/-. The construction was completed and Cinema Theatre, Alpana started running in the premises. The Alpana Cinema property was valued by assessment books of accounts. On pending assessment of Wealth Tax of one of the partners, the Wealth Tax Officer made a reference for valuation of the Alpana Cinema to Department Valuation Officer, New Delhi by Reference dated 29.04.1976. Valuation Officer after inspecting the site submitted its report dated 26.04.1977 valuing the property for assessment year 1970-71, 1971-72, 1972-73, 1973-74 and 1974-75. Notices u/s. 17 of the Wealth Tax Act, 1957 were issued to the Appellants on 30.03.1979. Assessees got the property valued by an approved Valuer adopting income capitalisation method. The assessment order was passed by the Wealth Tax Officer in March, 1983 making assessment for the period from 1970-71 to 1974-75. The assessment was completed as per percentage of the right of different Assessees which they had in the Firm. The Assessing Officer relied on the Valuation Report submitted by the Departmental Valuer. The Assessee, aggrieved by the assessment order, filed appeal before the Appellate Assistant Commissioner of Wealth Tax. The Appellate Authority by its detailed order dated 23.01.1986 affirmed the assessment made by the Assessing Officer on the basis of valuation by land and building method. The income capitalisation method as was relied on by the Assessee was not approved.

Being aggrieved by the different assessment orders the Assessees filed Wealth Tax Appeal before the Income Tax Appellate Tribunal (ITAT), Delhi Bench, Delhi. The ITAT accepted the case of the Assessee to the effect that the proper basis for valuing the Cinema building would be capitalisation of the income. The ITAT held that since the building could be used only for film exhibition and it cannot be used for any other purpose, the method of its valuation has to be necessarily different from the one normally adopted in the case of buildings which are capable of being used as commercial buildings. The Revenue, aggrieved by the Tribunal’s order filed reference application through Department. Although, initially the same was rejected by the Tribunal, on the direction of the High Court two questions were referred to the High Court for decision.

The High Court vide its judgment and order dated 21.10.2005 answered the questions in favour of Revenue and against the Assessee. The High Court held that Wealth Tax Officer was justified in adopting the land and building method. The High Court held that yield/rent capitalisation method would not be correct method of valuation of the property in question.

The Supreme Court noted that sub-section (2) of section 7 begins with non obstante Clause which enables the Wealth Tax Officer to determine the net value of the assets of the business as a whole instead of determining separately the value of each asset held by the Assessee in such business. The language of s/s. (2) provides overriding power to the Wealth Tax Officer to adopt and determine the net value of the business having regard to the balance-sheet of such business. The enabling power has been given to Wealth Tax Officer to override the normal Rule of valuation of the properties, that is the value which it may fetch in open market, Wealth Tax Officer can adopt in a case where he may think it fit to adopt such methodology.

The Supreme Court noted that the Appellants’ submission was that the provision of section 7(2)(a) is a stand alone provision and is to be applied in all cases where Assessee is carrying on a business.

The Supreme Court however, did agree with the above submission.

The Supreme Court held that overriding power has been provided to override the normal method of valuation of property as given by s/s. 7(1) to arm the Wealth Tax Officer to adopt the method of valuation as given in s/s. (2)(a). The purpose and object of giving overriding power is not to fetter the discretion. The Wealth Tax Officer is not obliged to mandatorily adopt the method provided in section 7(2)(a) in all cases where Assessee is carrying on a business. The language of s/s. (2)(a) does not indicate that the provisions mandate the Wealth Tax Officer to adopt the method in all cases of running business.

The Supreme Court pointed out in Juggilal Kamlapat Bankers vs. ITO (1984) 145 ITR 485 (SC), it had categorically laid down that resort to section 7(2)(a) is discretionary and enabling provision to Wealth Tax Officer to adopt the method as laid down in section 7(2)(a) for a running business, but the above enabling power cannot be held as obligation or shackles on right of Assessing Officer to adopt an appropriate method.

According to the Supreme Court, in the present case reference was made to the Departmental Valuer by Assessing Officer u/s. 7(3). Thus, there was a conscious decision of the Assessing Officer to obtain the report from the Departmental Valuer. The above conscious decision itself contained the decision of Assessing Officer not to resort to section 7(2)(a). The Valuation report of Departmental Valuer had been received, which has been relied on by the Assessing Officer for assessing the Assessee in the relevant year. The Supreme Court therefore did not find any error in the order of the Assessing Officer in adopting the land and building method by making a reference to Departmental Valuer to value the property on the said method.

The Supreme Court further held that the proposition that if two reasonable constructions of taxing statute are possible, that construction which favours the assessee must be adopted, could not be read to mean that under two methods of valuation the value which is favourable to the assessee should be adopted.

19. Industrial Undertaking – Deduction u/s. 80IA – The quantum of deduction allowable u/s. 80-IA of the Act has to be determined by computing the gross total income from business, after taking into consideration all the deductions allowable Under sections 30 to 43D of the Act irrespective of the fact as to whether the Assessee has claimed the deductions allowable under sections 30 to 43D of the Act or not

Plastiblends India Limited vs. Addl. Commissioner of Income Tax, Mumbai and Ors. (2017) 398 ITR 568 (SC)

The Assessment Years involved in the appeals before the Supreme Court were 1997-98 to 2000-01. The Assessee was engaged in the business of manufacture of master batches and compounds. For this purpose, it had manufacturing undertakings at Daman Units I and II. Units I and II began to manufacture Article or things in the previous years relevant to Assessment Years 1994-95 and 1995-96 respectively. Accordingly, for the year under consideration i.e. Assessment Year 1997-98, profits of the business of both the undertakings were eligible for 100% deduction u/s. 80-IA of the Act. The Assessee did not claim depreciation while computing its income under the head profits and gains of business. Consequently, deduction u/s. 80-IA was also claimed on the basis of such profits i.e. without reducing the same by depreciation allowance. This position was accepted by the Assessing Officer (AO) in an intimation made u/s. 143(1)(a) of the Act. Likewise, for the Assessment Year 1996-97, the Assessee did not claim deduction on account of depreciation. Though this position was not accepted by the AO, the claim of the Assessee was upheld by the Tribunal.

In the Assessment Year 1997-98, from which Assessment Year the dispute had arisen, the annual accounts prepared by the Assessee for the year disclosed that it earned a net profit of Rs. 1,80,85,409/-. This was arrived at after charging depreciation of Rs. 64,98,968/- in accordance with the Companies Act, 1956. The Assessee filed its return of income for Assessment Year 1997-98 determining the gross total income at Rs. 2,46,04,962/-. The gross total income included profits and gains derived from business of undertakings I and II at Daman aggregating to Rs. 2,46,04,962/-, which profits were eligible for deduction u/s. 80-IA of the Act. After reducing the gross total income by the deductions available u/s. 80-IA, the total income was computed at Rs. Nil. The AO initiated reassessment proceedings and passed an assessment order u/s.143(3) read with section 147 computing the gross total income at Rs. 34,15,583/. Though the Assessee had disclaimed deduction in respect of depreciation, the AO allowed deduction on this account as well in respect of the same in the sum of Rs. 2,13,89,379/- while computing the profit and gains of business. After reducing the gross total income by the brought forward loss of Rs. 98,47,170/-, he determined the business loss to be carried forward to Assessment Year 1998-99 at Rs. 66,25,587/-.

Aggrieved by the said assessment order, the Assessee filed the appeal before the Commissioner of Income Tax (Appeals) {CIT(A)} urging that the AO erred in not considering the Tribunal’s decision in the Assessee’s own case for the Assessment Year 1996-97 wherein it had been held that depreciation could not be thrust on it. The CIT(A) upheld the Assessee’s submission that claim for depreciation was optional, based on the Tribunal’s order in its own case for Assessment Year 1996-97 and hence, allowed the appeal.

Aggrieved by the appellate order of the CIT(A), the AO filed an appeal before the Tribunal with the plea that CIT(A) erred in directing him to work out business profit and deduction u/s. 80-IA of the Act without taking into account the corresponding depreciation amount. The Tribunal reversed the appellate order of the CIT(A) following the decision of the High Court of Bombay in Scoop Industries P. Ltd. vs. Income-Tax Officer (2007) 289 ITR 195. Aggrieved by the Tribunal’s order, the Assessee filed the appeal thereagainst before the High Court of Bombay u/s. 260A of the Act on the basis that a substantial question of law arose for consideration. The High Court was pleased to admit the appeal.

The Division Bench of the High Court at Bombay in the Assessee’s case noticed that there was a conflict of opinion in two earlier decisions viz. Grasim Industries Ltd. vs. Assistant Commissioner of Income-Tax and Ors. (2000) 245 ITR 677, wherein it was held that the profits and gains eligible for deduction under Chapter VI-A shall be the same as profits and gains computed in accordance with the provisions of the Act and included in the gross total income and the decision in Scoop Industries P. Ltd., where it was held that depreciation whether claimed or not has to be reduced for arriving at the profits eligible for deduction under Chapter VI-A. Noticing this conflict of opinion, the matter was referred to the Full Bench, to resolve the conflict.

The Full Bench of the High Court of Bombay has upheld the stand of the Revenue, that, whilst computing a deduction under Chapter VI-A, it was mandatory to grant deduction by way of depreciation. The High Court proceeded on the basis that the computation of profits and gains for the purposes of Chapter VI-A is different from computation of profits under the head ‘profits and gains of business’. It has, therefore, concluded that, even assuming that the Assessee had an option to disclaim current depreciation in computing the business income, depreciation had to be reduced for computing the profits eligible for deduction u/s. 80-IA of the Act. The High Court concluded that section 80-IA provides for a special deduction linked with profits and is a code by itself and in so doing relied on the decisions of this Court in the case of Liberty India vs. Commissioner of Income Tax (2009) 317 ITR 218, Commissioner of Income Tax vs. Williamson Financial Services and Ors. (2008) 297 ITR 17 and Commissioner of Income Tax, Dibrugarh vs. Doom Dooma India Ltd. (2009) 310 ITR 392. The High Court proceeded on the basis that this Court in the aforementioned decisions has held that for computing such special deduction, any device adopted by an Assessee to reduce or inflate the profits of such eligible business has to be rejected. The High Court ultimately held that the quantum of deduction eligible u/s. 80-IA has to be determined by computing the gross total income from business after taking into consideration all the deductions allowable under Sections 30 to 43D including depreciation u/s. 32.

After the Full Bench answered the reference in the aforesaid manner, the appeal of the Assessee was disposed of by the Division Bench vide order dated November 03, 2009 following the aforesaid opinion of the Full Bench.

According to the Supreme Court, the singular issue which was required to be considered in these appeals pertained to claim of depreciation while allowing deduction u/s. 80-IA.
The Supreme Court noted that interpreting the provisions of section 32 of the Act (which prevailed in the relevant Assessment Years) it had in CIT vs. Mahendra Mills (2000) 243 ITR 56, held that it is a choice of an Assessee whether to claim or not to claim depreciation.

The Supreme Court observed that section 32 deals with depreciation and allows the deductions enumerated therein from the profits and gains of business or profession. Section 80-IA of the Act, on the other hand, contains a special provision for assessment of industrial undertakings or enterprises which are engaged in infrastructure development etc. The issue was as to whether claim for deduction on account of depreciation u/s. 80-IA is the choice of the Assessees or it has to be necessarily taken into consideration while computing the income under this provision.

The Supreme Court held that firstly, the Apex Court decision in the case of Mahendra Mills (supra) could not be construed to mean that by disclaiming depreciation, the Assessee can claim enhanced quantum of deduction u/s. 80IA. Secondly, the Apex Court in the case of Distributors (Baroda) P. Ltd. (supra) and in the case of Liberty India (supra) had clearly held that the special deduction under Chapter VIA has to be computed on the gross total income determined after deducting all deductions allowable under sections 30 to 43D of the Act and any device adopted to reduce or inflate the profits of eligible business has got to be rejected.

Thirdly, the Apex Court in the case of Albright Morarji and Pandit Ltd. (supra), Grasim Industries Ltd. (supra) and Asian Cable Corporation Ltd. (supra) had only followed the decisions of the Apex Court in the case of Distributors Baroda (supra). According to the Supreme Court, the quantum of deduction allowable u/s. 80-IA of the Act has to be determined by computing the gross total income from business, after taking into consideration all the deductions allowable under sections 30 to 43D of the Act.

Therefore, whether the Assessee has claimed the deductions allowable under sections 30 to 43D of the Act or not, the quantum of deduction u/s. 80IA has to be determined on the total income computed after deducting all deductions allowable under sections 30 to 43D of the Act. _

BCAJ Admin

Indirect Taxes

Service Tax Updates

110. Withdrawal of exemption – online information and
database access or retrieval services

Notification No. 5/2017-ST dated 30. 01. 2017

CBEC has withdrawn the exemption
for services by way of online information database access or retrieval services
which is being provided by a person located in a non-taxable territory and
received by an entity providing charitable activities and registered u/s. 12AA of the Income-tax
Act,1961.

111. Relaxation for deposit of tax – services provided by way
online information and database access or retrieval services

Notification No. 6/2017-ST dated 30. 01. 2017

CBEC has provided relaxation on
due date for payment of service tax payable on services provided by any person
located in a non-taxable territory and received by non-assessee online
recipient, for the month of December, 2016 & January 2017, so as to deposit
the same by the 6^thday of March, 2017 to the credit of Central
Government.

112. Budget Notification enabling various changes under the
present exemption structure

Notification No. 7/2017-ST dated 02 02 2017

Manufacturing related
exemption:

– Hitherto,
manufacturing related activities are
excluded from the scope of service tax. However, the proposed amendment
omits the same from negative list and the exemption to the same is being placed
here. The amendment provides categorical exemption to any intermediate
production process as job work not amounting to manufacture or production in
relation to agriculture, printing or textile processing etc. [Effective from date of enactment of Finance Bill,
2017]

– The term
“process amounting to manufacture or production of goods” has been defined in
Notification 25/2012 dated 20.06.2012 to mean a process on which duties of
excise are leviable u/s. 3 of the Central Excise Act, 1944 (1 of 1944), or the
Medicinal and Toilet Preparation (Excise Duties) Act, 1955(16 of 1955) or any
process amounting to manufacture of opium, Indian hemp and other narcotic drugs
and narcotics on which duties of excise are leviable under any State Act for
the time being in force.

Transport related exemptions:

– Exemption
scope widened under the said sector to provide relief to Government employees.
Accordingly, services of transport of passengers, with or without accompanied
belongings, by air embarking from or terminating at Regional Connectivity
Scheme and consideration received in form of Viability Gap Funding is exempted
from payment of service tax. [Applicable from 02.02.2017]

Education related exemptions:

– Education
being a primary role for country’s development, broadens the scope of exemption
which is as under:

• Services provided by the Indian
Institutes of Management, as per the guidelines of the Central Government, to
their students, by way of the following educational programmes, except
Executive Development Programme –

(a) two year full time Post
Graduate Programmes in Management for the Post Graduate Diploma in Management,
to which admissions are made on the basis of Common Admission Test (CAT),
conducted by Indian Institute of Management;

(b) fellow programme in
Management;

[Applicable from 02.02.2017]

• The word “residential” is
deleted from the above mentioned exemption entry which substantiates that fees
collected for both residential and non-residential or online Post Graduate
Programmes in Management for the Post Graduate Diploma in Management, to which
admissions are made on the basis of Common Admission Test (CAT), conducted by
Indian Institute of Management are exempted from payment of service tax.

Insurance related exemption:

• Services of life insurance
business provided or agreed to be provided by the Army, Naval and Air Force
Group Insurance Funds to members of the Army, Navy and Air Force, respectively,
under the Group Insurance Schemes of the Central Government are exempted from payment of service tax.
[Applicable from 02.02.2017]

113. Exemption –
services provided by operators of Common Effluent Treatment Plant

Notification No. 8/2017-ST dated 20. 02. 2017

CBEC has provided relaxation by
way of exemption on services provided by operators of Common Effluent Treatment
Plant by way of treatment of effluent for the period from 1^stJuly,
2012 to 31^st March 2015.

114. Introduction of
Minor head code for accounting of Refund

Circular No: 203/1/2017 – Service Tax dated 02.02.2017

CBEC has introduced minor head
code for accounting of refund to identify the appropriate head of account under
which the service wise refunds are to accounted for eventually leading to
better compliance with respect to accounting of refunds.

115. Clarification on
applicability of service tax on services by way of transportation of goods by a
vessel from a place outside India to the customs station in India w.r.t. goods
intended for transhipment to any country outside India

Circular No: 204/1/2017 – Service Tax dated 16.02.2017

CBEC has clarified the long
lasting issue w.r.t. applicability of service tax on services provided to goods
intended for transhipment to any country outside India. Thus, the said
clarification is in line with position under the Customs Act, 1962 which states
that no customs duty is payable in cases where the goods entered into
territorial waters for transhipment and the destination of goods which is other
than India is mentioned in the import manifest/import report.

Accordingly, in case of
transhipped goods, services by way of transportation of goods by a vessel from
a place outside India to the customs station in India are not taxable in India
as the destination of such goods is a country other than India.

MVAT UPDATE

116. Go live of : 1)
Improved functionality of new registration with integrated payment gateways. 2)
Functionality of amendment and cancellation of registration certificate.

Trade Circular 4T of 2017 dated 02.02.2017

The SAP based system for online
registration has been upgraded with effect from 19.12.2016 with additional
features of Integration of Payment Gateways for payment of fee or Deposit or
both along with application for new registration as well as online facility of
application for amendment or
cancellation of registration certificate.

Detailed Instructions given in the circular
regarding applicants who have already paid deposit and fee prior to this new
system but not able to obtain registration certificate.

BCAJ Admin

Direct Taxes

106. CBDT issues clarification on implementation of GAAR
provisions under the Income-tax Act

Circular No. 7/2017 dated 27^th January 2017.

107. Circular No. 1/2017 on TDS on salaries contained mistake
in the table of due dates for furnishing of the e-TDS statements for the last
quarter of the year

CBDT has issued a corrigendum on 24^thJanuary 2017
to rectify the mistake.

108. Explanatory Notes to the Provisions of the Finance Act,
2016

Circular No. 3/2017, dated 20^th January, 2017

109. Instructions laying down standard operating procedures
to investigate the cash deposits above prescribed limits post demonetization
period-

Instruction no. 03/2017 dated 21.02.2017

BCAJ Admin

Glimpses of Supreme Court Rulings

14. Question of Law –
Whether the trading activity in the nature of re-export of imported goods
carried on by the SEZ unit of the assessee is to be considered as ‘services’
eligible for exemption u/s. 10AA of the Income-tax Act in view of the
definition of ‘services’ in Special Economic Zones Rules, 2006 though there is
no such provision in section 10AA of the Act, is a question of law.

CIT vs. Bommidala Enterprises Pvt. Ltd. (2016) 389 ITR 1
(SC)

In an appeal filed before the Andhra Pradesh High Court, the
Department had raised the following questions of law:

1. In the facts and circumstances of the case,
whether the Tribunal was correct in upholding the finding of the Commissioner
of Income-tax (Appeals) that the trading activity carried on by the SEZ unit of
the assessee was to be considered as ‘services’ eligible for exemption u/s.
10AA of the Income-tax Act by relying on the definition of “services” as per
Special Economic Zone Rules, 2006 when there was no such provision in section
10AA of the Act?

2. In the facts and circumstances of the case,
whether the Tribunal was justified in relying on the instructions issued by the
Ministry of Commerce regarding the applicability of exemption u/s. 10AA of the
Income-tax Act to the trading activity in the nature of re-export of imported
goods though there was no subsequent amendment made to the provisions of the
Income-tax Act to give effect to the clarification contained in the
instructions in spite of the mention in the said instructions that appropriate amendments are being issued?

3. In the facts and circumstances of the case,
whether the Tribunal was correct in law in upholding the exemption claimed u/s.
10AA of the Income-tax Act when the respondent assessee was not involved either
in manufacture or production of article/or/thing or provide any services as
required in the said statutory provision but was engaged in trading activity
only?

The Revenue’s Counsel contended before the High Court that
the assessee was carrying on trading business and not the manufacturing
business. The High Court however held that this was a factual aspect and it had
been taken care of by the authorities below (both CIT(A) and ITAT held that the
assessee was entitled to exemption u/s. 10AA) and that the fact finding could
not be interfered with, unless it was found perverse. The High Court dismissed
the appeal of the Revenue.

On further appeal, the Supreme Court observed that the
question of law that was raised by the Appellant-Revenue herein before the High
Court was as to whether trading activity carried on by the SEZ unit of the
Respondent-Assessee was to be considered as ‘service’ eligible for exemption u/s.
10AA of the Income-tax Act. The Supreme Court noted the submission of the
Appellant that for this purpose, the Income-tax Appellate Tribunal could not
have relied upon the definition of ‘services’ as per SEZ Rules when there was
no such provision u/s. 10AA of the Act.

The Supreme Court observed that a perusal of the order of the
High Court showed that this aspect was not considered and brushed aside by
merely saying that the Tribunal had held it to be a ‘service’ and that it was a
question of fact. The Supreme Court held that no doubt, insofar as activity
carried on by the Respondent-Assessee was concerned, factual aspects were not
in dispute.

However, whether that would constitute ‘service’ within the
meaning of section 10AA of the Act would be a question of law and not a
question of fact. The High Court was, therefore, in error in not entertaining
the said plea and dismissing the appeal of the Revenue by labelling it as a
question of fact. The Supreme Court, therefore, set aside the order of the High
Court and remanded the case to the High Court to decide the aforesaid question
of law.

15. Deduction of tax at source – Assessee not heard by the
High Court and the review petition also dismissed – Supreme Court set aside the
orders and remanded the matter for decision afresh

Novo Nordisk Pharma India Ltd. vs. CIT (2016) 389 ITR 134
(SC)

The High Court allowed the appeal filed by the Revenue. The
question was as to whether the transaction between the assessee and the person
to whom certain payments were made was one attracting the provisions of section
194C of the Act.

The assessee sought review because: (i) the Counsel of the
assessee was unable to appear on the day of hearing and argue the case as he
was engaged in other court; (ii) the Court had not examined the relevant board
circular, (iii) that the deductee having paid the tax, there was no loss to the
Revenue, and as such the situation did not warrant levy of interest.

The High Court dismissed the review petition holding that:
(i) inability to appear due to other engagement could hardly constitute a
ground for review; (ii) the Board Circular was not relevant as the matter was
decided considering the three inter-linking agreements; and (iii) whether the
deductee had paid its tax or not was not a relevant question in so far the
provisions of section 194C was concerned as section 201 was only consequential.

On appeal, the Supreme Court noted that it was a fact that
the assessee was not heard when the impugned judgment was delivered. Even the
review petition filed by the Appellant before the High Court was also rejected.

In the circumstances, the Supreme Court set
aside the impugned judgment and the matters were remitted to the High Court for
hearing afresh.

BCAJ Admin

From The President

Dear Members,

Open
any newspaper today, and you are bound to be bombarded by news about the
elections. Five states in India: Goa, Uttarakhand, Punjab, Manipur and Uttar
Pradesh are gripped by the fever of assembly elections, and it has spread
across the country. Slated to conclude on 8^thMarch, the nation has
its fingers crossed, tensely awaiting the results.

Ballot ‘box offices’

This
is more so since this election has witnessed record crowds at the ballot ‘box
offices’. Goa tops with 83% polling, Punjab follows with 75% turnout and
Uttarakhand finishes with 65%. The elections are on in UP where the turnout is
over 60% and is yet to start in Manipur. With huge implications at the centre,
parties seem to have gone all out with alliances, rallies, advertising and
social media to sway the masses.

Mumbai
had been dragged into the election maelstrom too. BMC — Asia’s largest and
richest municipal corporation with 91.8 lakh voters decided the fate of 2,275
candidates from 7 political parties as they battled for 227 wards. Alliance
partners BJP and Shiv Sena, now bitter rivals both won voters’ confidence with
82 and 84 seats respectively. With no clear majority, horsetrading is in full
‘gallop.’ Meanwhile, a cartoonist has aptly depicted two potholes celebrating
their existence for another five years… I HOPE NOT!

But
the big question today is that after being urged to cast our vote…what next?
The politicians that come into power more often than not continue to do their
own thing. Five years are seen as an opportunity to indulge in practices which
are ideal examples of ‘form over substance’. From ill-spent public money to
both overt and covert corruption, from being not accountable for promises to
breaking commitments made to voters and from covering up the stream of reason
with that of allegations and excuses. After all, as Jonathan Swift once said, “Promises
and pie-crust are made to be broken.” I believe unless there are some
serious and periodic accountability and appraisal mechanism, we can expect
another five-year ride!

Economic health barometer – Are we really healthy?

On
the last day of January, the finance minister tabled the economic state of the
Union through the Economic Survey. Authored by India’s Chief Economic Advisor,
Arvind Subramanian, the survey has been hailed as a magnum opus on development.
This economic report card is a reservoir of the key statistics of various
elements of the economy and also contains some interesting ideas to make India
better…a lot faster!

The
survey addressed the impact of demonetization claiming that it will be
transitional, with real GDP expected to be from 6.75 to 7.5% in 2017-18. It
also stressed on the importance of quick monetization along with a slew of
initiatives like pushing digitization, bringing land and real estate under GST,
reducing taxes and stamp duties and improving the tax administration system.

In
fact, three exclusions from GST viz. electricity, real estate and petroleum
products reflects the re-thinking on the part of GST Council. It has been
agreed to bring petroleum products into GST ambit after 5 years. A similar
agreement is necessary for electricity and real estate. In fact, by bringing
real estate into GST fold would encourage investment, since real estate
development is a critical part of fixed capital formation.

The
survey, however, was strong in its criticism of the excessive regulation that
continues to plague the agricultural sector. It expressed disapproval that
farmers in many states were forced by an Act to sell only to specified
intermediaries in authorized mandis – thus depriving them of better returns.

Non
Performing Assets in PSU Banks is another cause for concern. At 12% of the
gross advances, this level has choked the credit flow to industry especially
the MSME. This dismal situation calls for some urgent corrective action, like
setting up of a central public sector asset rehabilitation agency to tackle
this growing challenge.

The
survey also proposed a new idea of Universal Basic Income (UBI) for all, in place
of existing welfare schemes and subsidies. In essence, an amount of Rs.7,620/-
would be deposited into Aadhaar linked bank accounts annually which would
drastically cut absolute poverty from 22% to less than 0.5%. The funding for
this UBI would come from recycling funds from around 950 existing welfare
schemes; which add up to roughly 5% of GDP. The survey believes that “UBI is
a powerful idea whose time even if not ripe for implementation, is ripe for
serious discussion.”

Budget 2017-18

This
year’s Budget can be termed as a TRULY UNION Budget – one BUDGET for the entire
Union – as after decades someone thought of discarding Railway Budget as a
separate element of parliamentary business. The Budget gives a DISHA, that will
determine the DASHA of the country in the year ahead. Having said that, we do
acknowledge the problems with the government, politicians and tax laws. It is
always possible to do more and some of it is of urgent necessity. But that
applies to our society too and perhaps to each one of us here. If
transformation and innovation can touch the core of all four – citizens,
government, politicians and tax laws, the positive impact of change could be so
much more that it can be miraculous in its effect. BCAS has the benefit of
Senior Advocate Shri S. E. Dastur for last 28 years for unraveling the hidden
amendments in the Finance Bill. This year was special due to the sheer size of
people taking advantage of his spectacular analysis, in person and virtually.
Rumours are that even the Finance Ministry was tuned in when Shri Dastur was
delivering his speech. I only hope that the Ministry takes into cognizance the
various anomalies pointed out by Mr. Dastur and takes appropriate action. BCAS
had advocated strongly for scrapping the Income Computation and Disclosure
Standards, but was grossly disappointed that the bureaucracy has again won over
advocacy. So we have one more legislation to understand, implement and
litigate. All the best!

The
Finance Minister has announced a new programme consisting of ten distinct
themes which would “Transform, Energize and Clean India” (TEC). This
broad agenda is to be executed through several welfare initiatives concerning
farmers, the rural population, youth and the underprivileged.

To
project India as an attractive investment destination, the budget abolished the
Foreign Investment Promotion Board, exempted FPI investors from indirect
transfer provision and lowered corporate tax for MSME to 25%. Personal income
tax rates have been rationalized and digitization promoted with a ban on cash
transactions above Rs. 3 lakh while cash donations have been capped at
Rs.2,000.

Much
is expected to be achieved while containing the fiscal deficit at 3.2% of the
GDP in FY18, which would be further curtailed to 3% by FY19. This fiscal prudence is aptly reflected in the
pragmatic budget which is bereft of any populist largesse.

Change is welcome

After
a span of 7 years, we again have the President of our alma mater, from Western
Region. My heartiest congratulations to CA. Nilesh Vikamsey and CA. Naveen N.
D. Gupta for their ascension to the coveted post of President and Vice
President of the ICAI. It is all the more proud moment for BCAS that one of our
core group members is now the torch bearer of this esteemed profession. CA.
Nilesh Vikamsey, as we at BCAS know him can be described as a person committed
to excellence, massively innovative and wears passion for the profession on his
sleeve. I am reminded of a quote which CA. Nilesh Vikamsey aptly follows; “Leadership
is action, not position.”

Through
this message, I would also like to convey to the torch bearers of the
profession that we at BCAS are always at the forefront to take up the cause of
the profession and ICAI can very well bank upon us to further the cause of our
profession.

Warm
Regards,

Chetan Shah

BCAJ Admin

Ethics and U

Shrikrishna (S) — Arjun, you are looking very much tensed up today. Any problem?

Arjun (A) —Yes. Already having a tough time facing scrutiny assessments. Plus advance tax work is on. Again, after the Union Budget, some urgent study and action will be required.

S — But that is normal in this part of the year. You should be quite used to such pressure!

A — I agree. But suddenly my friend is insisting that I should accompany him to Delhi.

S — Delhi? What for? To meet the PM or FM? Ha Ha Ha!

A — No Bhagwan. He is a very low profile CA. Poor fellow was held guilty of misconduct in a very trivial matter. Probably, he was not represented properly.

S — So, what is there at Delhi now?

A — When he consulted a senior member, he advised him to approach the Appellate Authority of our Institute.

S — I know. It is presided over by a High Court Judge.

A — Unfortunately, Appellate Authority does not have camps in regional offices! One has to attend at Delhi only.

S — Oh! It would be very expensive. Travel, counsel’s fee, and so on!

A — True. He is very much afraid of all this. He has engaged a counsel; but he is insisting that I should also accompany him.

S — He may be a little diffident.

A — Yes. Actually, he is from a rural area. Does not have the exposure and smartness to organise all this.

S — Then better rethink as to whether it is worthwhile contesting the issue. What is the punishment by the way?

A — Actually, the punishment is a mere reprimand. But he feels it is a stigma.

S — I know of another CA who was awarded one week’s suspension of membership. But he did not find it worth contesting, though his case had a lot of merit.

A — Why? One should always fight for justice.

S — I agree. But justice at what cost? And what is the guarantee of result? Are you aware of the procedure of Appellate Authority?

A — No. I will be attending for the first time.

S — See, in the notice, they must have mentioned as ‘preliminary hearing’.

A — Yes. What does that mean? .

S— It means, they will only hear your side and ascertain whether there is any substance in your appeal.

A — And then what?

S — Then, sometime later, they will hear the other side – that means the Council’s side. And they will decide whether the appeal is to be admitted! You also will be called for that hearing.

A — Oh! That means like the regular High Court. But both sides are not heard together?

S — Only after the preliminary hearing!

A — Very strange!

S — Yes. And if the appeal is admitted, then only they will fix up a date for hearing both sides.

A — Oh, my God! So the poor respondent will have to travel to Delhi thrice – with the Counsel?

S — Yes, my dear!

A — Then double the cost! And again so much of time! Doesn’t seem worth the trouble.

S — To avoid all this, the best thing is not to commit any misconduct even inadvertently! Not even in your dream!

A — What you say is absolutely correct! Prevention is better than cure. I must tell all this to my friend. One should really do the cost-benefit analysis of the whole thing.

S — Unfortunately in our system, justice is becoming more and more costly; and illusory.

A — Bhagwan, after all, this is your ‘leela’. You alone can save us from disaster!

Om shanti !!!!!

Note
The above dialogue intends to introduce our readers to the procedure followed by the Appellate Authority. The readers can go through section 22A of the Chartered Accountants Act, 1949 for their self study.

BCAJ Admin

Company Law

1. Companies (incorporation) amendment rues 2016

The Ministry of Corporate Affairs has issued an Amendment to the Companies (Incorporation) Rules, 2014 which are in force w.e.f 26th January 2016. Following are the changes in Rule 8 pertaining to “Undesirable names”: The name of the Company need not be in consonance with the principal objects as set out in the Memorandum of Association. However, when there is some indication of objects in the name, then it shall be in conformity with the objects mentioned in the memorandum.

a) Abbreviated names based on the first initial of the promoters would not be allowed.

b) If the name is misleading with regard to the scope of the activities which are beyond the resources at its disposal, such names are not allowed.

c) A time limit of 6 months has been given for changing the name of the Company, in case there has been a change in the activities of the Company and this is not reflected in the name.

The No Objection of a person who has been named in the key word of the proposed name for the Company, proof of the relationship and proof that the coined word is made out of the names of the promoters or their relatives, is not mandatory to be attached.

Further, after the resubmission of the documents and on completion of second opportunity, if the Registrar still finds that the documents are defective or incomplete, he shall give third opportunity to remove such defects or deficiencies;

Provided that the total period for re-submission of documents shall not exceed a total period of thirty days.

2. Companies (accounts) amendment rules, 2015

The Ministry Of Corporate Affairs has vide Notification dated 16th January, 2015 amended the Companies (Accounts) Rules, 2014 with the Companies (Accounts) Amendment Rules, 2015.

After Rule 2 the following is inserted –
“2A. Notice of address at which books of account are to be maintained.—For the purposes of the first proviso to sub-section (1) of section 128, the notice regarding address at which books of account shall be in Form AOC-5” and

Note by the author : Form AOC-5 is similar to eForm 23AA as per section 209(1) of the Companies Act, 1956 and is required to be filed when the Board of Directors decides by passing the resolution to keep all or any of the books of account at any other place in India besides the registered office then, the company shall, within seven days of passing the Board Resolution, file this form giving full address of that other place in form AOC-5.

In rule 6, after the third proviso, the following proviso shall be inserted, namely:—

“Provided also that nothing in this rule shall apply in respect of consolidation of financial statement by a company having subsidiary or subsidiaries incorporated outside India only for the financial year commencing on or after 1st April, 2014.”

3. Companies (cost records and audit) amendment rules 2014

The Ministry of Corporate Affairs has vide Notification dated 31st December, 2014 made the Companies (Cost Records and Audit) Amendment Rules, 2014 to amend the Companies (Cost Records and Audit) Rules, 2014.

Rule 2 (aa) ‘Central Excise Tariff Act Heading” means the heading as referred to in Additional notes in First Schedule to Central Excise Tariff Act 1985.

Companies are required to maintain Cost Records if turnover exceeds Rs. 35 crores or more during immediately preceding Financial Year in respect of the products and services specified;

Applicability of Cost Records: The Rules has categorized the Entities into:

Regulated Sector (namely Telecommunication services; Power generation, Transmission, Distribution and Supply; Petroleum products; Drugs and Pharmaceuticals; Fertilisers; Sugar and Industrial alcohol) and

Unregulated Sectors ( i.e steel, minerals oil, electrical, education services, health services, textiles, milk powder, medical devices etc. businesses);

Applicability of Cost Audit : Applicable for entities under as follows :

Regulated sectors having overall annual turnover of Rs. 50 crores or more and the aggregate turnover of the individual products or services of Rs. 25 crore

Unregulated Sector having annual turnover of Rs. 100 crores or more and the aggregate turnover of the individual products or services of Rs. 35 crore or more.

The applicability for their Cost Records Audit is for financial years commencing from 1st April 2015.

Exemptions are provided to Companies whose revenue from exports, in foreign exchange, exceeds 75% of total revenue and Companies operating from Special Economic Zones.

4. Whether huf/its karta can be a partner/ designated partner ( dp) in an llp

The Ministry of Corporate Affairs has vide notification dated 15th January 2016 clarified that a HUF or its Karta cannot be a designated Partner in an LLP since the Section 5 of LLP Act, 2008 mentions that only an individual or a body corporate can be a partner in a LLP. HUF not being a body corporate, neither the HUF nor through its Karta can it be a Partner.

5. Frequently asked questions (faqs) with regard to corporate social responsibility under section 135 of the Companies Act, 2013

The Ministry of Corporate Affairs has vide Notification dated 12th January 2016 issued an FA Q on Corporate Social responsibility.

BCAJ Admin

Book Review

Title : ?Emerging Issues in International Taxation‘

Author : H. Padamchand Khincha

International tax law is recognised as a
critical pillar in supporting the growth of the global economy. In an
increasingly connected world driven by the forces of globalisation and
technology, governments are finding the old structure of international tax laws
to be inadequate to cope with increasing legal arbitrage opportunities and
aggressive tax planning. This has resulted in a coordinated and comprehensive
action plan thereby triggering a flurry of developments in the field of
international tax. This book endeavours to deliberate upon critical
international tax aspects under the following six topics.

1. Cross-Border Outsourcing

In respect to cross-border
outsourcing, the discussion is restricted to generic issues arising in the
service sector and seeks to provide a tertiary view of both inbound and
outbound outsourcing.

2. Structuring of EPC Contracts

EPC contracts are in trend
and newness in its operation has been the integration of multiple fields making
it an (in) divisible complex, matrix. These aspects have been articulated in the
backdrop of tax, commercial and statutory aspects. The nuances in tax treaty
applications and tax withholding have been discussed along with some case
studies.

3. Inbound and Outbound
Investment Structuring – Impact of specific anti
avoidance rules including indirect transfer and Place of Effective Management
(POEM)

The book focuses on two amendments, mainly
indirect transfer as introduced in Finance Act, 2012 and POEM amendment brought
out by Finance Act, 2015 to determine the residential status.

This chapter is more of a ‘return to basics’
and deals with certain important and relevant terms such as through, transfer,
value, directly and indirectly.

The second part of this chapter dives into
the realm of POEM theorem with a lucid explanation of its intent. The author
discusses that a meeting that typically involves discussion, debate, approval,
supervision and execution can have a significant impact in reckoning the
residence of the company itself. The segment closes by demonstrating the
transition of the residence rule from ‘control and management’ to ‘POEM’ and
the interplay (nay friction) with the tax treaties.

A flashback to the ‘Direct Tax Code’ that
sought to bring in this concept helps to understand the Indian perspective for
the purpose of residence determination.

4. Equalisation levy

This chapter provides a
detailed commentary on various provisions governing the equalisation levy,
certain nitty-gritty and finer aspects that remain unanswered. The author
highlights that such legislation has raised more questions than answers. It
ends with a tertiary view of digital economy taxation across the globe and
covers flavours of 21 countries.

5. Inbound Investment, General
Anti Avoidance Rule (GAAR) & Treaty Anti-Abuse Provisions

This chapter has dealt
with the intent behind the legislation of GAAR that gives statutory recognition
to the philosophy of ‘Substance over Form’. It is divided into (i)
applicability, (ii) consequences, (iii) power of the statute; and (iv)
compliance and other aspects.

6. Permanent Establishment
(PE) & Attribution of Profits – Issues & Recent Developments

In this chapter, the
author has focussed on the Hon’ble Supreme Court’s decision in the case of
Formula One. The impermanence in a Permanent Establishment is the highlight of
this ruling. In the second part, the author discusses the interplay of
bilateral tax treaties, the multilateral instruments and a brief perspective on
PE in digital commerce.

By drawing on contributions from a range of
regimes, the book aims to provide a more balanced international approach. The
book gives elaborate illustrations by providing a diagrammatic flow of
transaction and tax implications thereof in India and outside with updated
judicial precedents.

Further, the issues arising in each of the
above chapters have been elucidated comprehensibly which in turn can help
professionals with practical analysis of real-world situations. However, the
content of the book could have been improvised by providing suitable options
for implementation on the issues raised. Further, the book may not sustain
readers’ interest as tax treaties are given as Annexures between chapters.

In a nutshell, the range of topics in the
book reflect extensively for international tax academics and practitioners. The
book covers more traditional international treaty topics, including chapters on
a static interpretation of treaties. One of the most exciting contributions is
the use of historical materials in interpreting tax treaties. _

BCAJ Admin

Miscellanea

1. Economy

19. India’s richest one percent corner 73
percent of wealth generation: Survey

The richest 1 percent in India cornered 73
percent of the wealth generated in the country last year, a new survey showed
today, presenting a worrying picture of rising income inequality.

Besides,
67 crore Indians comprising the population’s poorest half saw their wealth rise
by just 1 percent, as per the survey released by the international rights group
Oxfam hours before the start of the annual congregation of the rich and
powerful from across the world in this resort town. The situation appears even
grimmer globally, where 82 percent of the wealth generated last year worldwide
went to the 1 percent, while 3.7 billion people that account for the poorest
half of population saw no increase in their wealth.

The annual Oxfam survey is keenly watched
and is discussed in detail at the World Economic Forum Annual Meeting where
rising income and gender inequality is among the key talking points for the
world leaders. Last year’s survey had showed that India’s richest 1 percent
held a huge 58 percent of the country’s total wealth — higher than the global
figure of about 50 percent. This year’s survey also showed that the wealth of
India’s richest 1 percent increased by over Rs 20.9 lakh crore during 2017 —
an amount equivalent to the total budget of the central government in 2017-18,
Oxfam India said.

The report titled ‘Reward Work, Not Wealth’,
Oxfam said, reveals how the global economy enables wealthy elite to accumulate
vast wealth even as hundreds of millions of people struggle to survive on
poverty pay. “2017 saw an unprecedented increase in the number of
billionaires, at a rate of one every two days. Billionaire wealth has risen by
an average of 13 percent a year since 2010 — six times faster than the wages
of ordinary workers, which have risen by a yearly average of just 2
percent,” it said.

In India,
it will take 941 years for a minimum wage worker in rural India to earn what
the top paid executive at a leading Indian garment firm earns in a year, the
study found. In the US, it takes slightly over one working day for a CEO to
earn what an ordinary worker makes in a year, it added.

Citing results of the global survey of
120,000 people surveyed in 10 countries, Oxfam said it demonstrates a
groundswell of support for action on inequality and nearly two-thirds of all
respondents think the gap between the rich and the poor needs to be urgently
addressed. With Prime Minister Narendra Modi attending the WEF meeting in
Davos, Oxfam India urged the Indian government to ensure that the country’s
economy works for everyone and not just the fortunate few.

It also said India’s top 10 percent of
population holds 73 per cent of the wealth and 37 per cent of India’s
billionaires have inherited family wealth. They control 51 per cent of the
total wealth of billionaires in the country.

Oxfam India CEO Nisha Agrawal said it is
alarming that the benefits of economic growth in India continue to concentrate
in fewer hands.

“The billionaire boom is not a sign of
a thriving economy but a symptom of a failing economic system. Those working
hard, growing food for the country, building infrastructure, working in
factories are struggling to fund their child’s education, buy medicines for
family members and manage two meals a day. The growing divide undermines
democracy and promotes corruption and cronyism,” she said.

The survey also showed that women workers
often find themselves at the bottom of the heap and nine out of 10 billionaires
are men. In India, there are only four women billionaires and three of them
inherited family wealth. “It would take around 17.5 days for the best-paid
executive at a top Indian garment company to earn what a minimum wage worker in
rural India will earn in their lifetime (presuming 50 years at work),”
Oxfam said.

(Source: newindianexpress.com dated
22.01.2018)

20. Reward Work, Not Wealth

Last year’s survey had showed that India’s
richest 1 per cent held a huge 58 per cent of the country’s total wealth—higher
than the global figure of about 50 per cent. This year’s survey also showed
that the wealth of India’s richest 1 per cent increased by over Rs 20.9 lakh
crore during 2017, an amount equivalent to total budget of the central government
in 2017–18, Oxfam India said.

“2017 saw an unprecedented increase in the
number of billionaires, at a rate of one every two days. Billionaire wealth has
risen by an average of 13 per cent a year since 2010—six times faster than the
wages of ordinary workers, which have risen by a yearly average of just 2 per
cent,” it said.

In India, it
will take 941 years for a minimum wage worker in rural India to earn what the
top paid executive at a leading Indian garment firm earns in a year, the study
found. In the US, it takes slightly over one working day for a CEO to earn what
an ordinary worker makes in a year, it added.

Citing results of the global survey of
70,000 people surveyed in 10 countries, Oxfam said it demonstrates a
groundswell of support for action on inequality and nearly two-thirds of all
respondents think the gap between the rich and the poor needs to be urgently
addressed.

(Source: newindianexpress.com dated
22.01.2018)

2. Technology

21. BSNL,
NTT AT sign pact for future tech, 5G test

The agreement is in line with the vision of
the Prime Minister Narendra Modi and Japanese Prime Minister Shinzo Abe to
collaborate on the next generation technologies.

(Source: Economic Times dated 20.02.2018)

22. Internet
users in India expected to reach 500 million by June: IAMAI

Rural India, with an estimated population of
918 million as per 2011 census, has only 186 million internet users leaving out
potential 732 million users in rural India.

(Source: Economic Times dated 20.02.2018)

23. Blockchain
tech can reduce transaction Costs: FICCI – PWC

The next generation blockchain technology
can help in reducing cost of transactions in various government schemes, a
joint report by industry chamber FICCI and consultant firm PwC.

“By removing the need for third parties
to manage transactions and keep records, blockchain technology can massively
reduce transaction costs… Leveraging blockchain technology for social benefit
schemes will support the government’s wider policy objectives of
sustainability, thus reducing poverty and generating value for money in public
expenditure,”

Blockchain is a digital, decentralised
(distributed) ledger that keeps a record of all transactions that take place
across a peer-to-peer network.

In the blockchain technology, the data can
be captured at various location or blocks and all the information captured at
various block can be connected with help of a common link or signature in one
set of information.

Additionally, each ‘block’ is uniquely
connected to the previous blocks via a digital signature which means that
making a change to a record without disturbing the previous records in the
chain is not possible, thus rendering the information tamper-proof.

Blockchain solutions, if implemented, may
lead to the elimination of intermediaries or middlemen, thereby leading to
improved pricing, decreased transaction fees, thus eliminate issues of
hoarding.

(Source: Economic Times dated 20.2.2018)

24. A Store of Future – Amazon Go

The technology inside Amazon’s new
convenience store, enables a shopping experience like no other — including
no checkout lines. The first clue that there’s something unusual about
Amazon’s store of the future hits you right at the front door. It feels as if
you are entering a subway station. A row of gates guard the entrance to the
store, known as Amazon Go, allowing in only people with the store’s smartphone
app.

Inside is an 1,800-square foot mini-market
packed with shelves of food that you can find in a lot of other convenience
stores — soda, potato chips, ketchup. It also has some food usually found at
Whole Foods, the supermarket chain that Amazon owns. But the technology that is
also inside, mostly tucked away out of sight, enables a shopping experience
like no other. There are no cashiers or registers anywhere. Shoppers leave the
store through those same gates, without pausing to pull out a credit card.
Their Amazon account automatically gets charged for what they take out the
door.

There are no shopping carts or baskets
inside Amazon Go. Since the checkout process is automated, what would be the
point of them anyway? Instead, customers put items directly into the shopping
bag they’ll walk out with. Every time customers grab an item off a shelf, Amazon
says the product is automatically put into the shopping cart of their online
account. If customers put the item back on the shelf, Amazon removes it from
their virtual basket.

The only sign of the technology that makes
this possible floats above the store shelves — arrays of small cameras,
hundreds of them throughout the store. Amazon won’t say much about how the
system works, other than to say it involves sophisticated computer vision and
machine learning software. Translation: Amazon’s technology can see and
identify every item in the store, without attaching a special chip to every can
of soup and bag of trail mix.

There were a little over 3.5 million
cashiers in the United States in 2016 — and some of their jobs may be in
jeopardy if the technology behind Amazon Go eventually spreads. For now, Amazon
says its technology simply changes the role of employees — the same way it
describes the impact of automation on its warehouse workers.

Most people who spend any time in a
supermarket understand how vexing the checkout process can be, with clogged
lines for cashiers and customers who fumble with self-checkout kiosks. At
Amazon Go, checking out feels like — there’s no other way to put it —
shoplifting. It is only a few minutes after walking out of the store, when
Amazon sends an electronic receipt for purchases, that the feeling goes away.
For now, visitors to Amazon Go may want to watch their purchases: Without a
register staring them in the face at checkout, it’s easy to overspend.

(Source: nytimes.com dated 21.01.2018)

3. World news

25. Future shocks: 10 emerging risks that
threaten our world

In the wake of the 2008 financial crisis, we
asked ourselves one question over and over again: why didn’t we see it coming?
It rocked the global economy and threatened to destroy the financial systems
that we rely on. Ten years on, some countries are still picking up the pieces.
The World Economic Forum’s Global Risks Report 2018 says that, in our
increasingly complex and interconnected world, this type of shock may become
more likely. The report explores 10 potential future shocks, including food
scarcity, the extinction of fish, technological breakdowns and another
financial crisis.

The report explores 10 potential future
shocks, including food scarcity, the extinction of fish, technological
breakdowns and another financial crisis.

26. Not enough food to go around

Extreme weather events are becoming an
all-too-familiar sight. Drought, hurricanes and floods have a major impact on
the global food supply chain. Lower yields in crops lead to rising food prices,
hitting those already struggling to feed themselves.

The report argues that, if an extreme
weather event were to coincide with existing political instability or crop
disease, we could see a major food crisis happen overnight.

This is a
scenario exacerbated by the inherent “choke points” within the global supply
chain. These are the sections within the chain where a large volume of trade
passes through. Disruption to any one of these could cause immediate global
shortages and price hikes, in turn causing political and economic crises, and
ultimately, conflict.

27. The end of trade as we know it

Brexit, Trump, protectionist policies, these
are all undermining globalization as we know it. Institutions designed to
resolve trade disputes have become weaker as a result.

The report argues that the continued march
against globalization could lead to multilateral rules being openly breached.

Those further along the value chain could
then retaliate, and before we know it the world will be grappling with rapidly
spreading trade disputes.

Economic activity, output and employment
could all be adversely affected. But these effects will have a far greater
impact on some people, fuelling further discontent.

“Whatever the settled position on global
trade is to be,” argues the report, “more deliberation and consensus-building
would bolster its legitimacy.”

28. War without rules

21st century warfare will not involve guns
or bombs, but rather cyber-attacks on a massive scale, posits the report.

If a country’s critical infrastructure
systems are compromised by a cyber-attack, leading to disruption of essential
services and loss of life, there would be massive pressure for a government to
retaliate. What if they target the wrong culprit? There is no telling where
this retaliation might lead.

Governments need to establish agreed norms
and protocols for cyber warfare, much like those that exist for conventional
warfare today. This would help to prevent conflict erupting by mistake.

29. The break-up of the internet

If cyberattacks become more likely they
could end up breaking the internet.

Nations might build digital walls as they
seek to protect themselves. But this might not be the only reason. Governments
might also choose to do this on the basis of economic protectionism, regulatory
divergence, or censorship and repression. If governments felt they were losing
power relative to global online companies they might also seek to control the
internet.

There would be a barrier to the flow of
content and transactions. Technological advancements would slow. While some
might welcome this, others would not. It’s likely that there would be plenty of
illegal workarounds.

Perhaps most worryingly, human rights abuses
would likely increase as advances in international monitoring are rolled back.

Ongoing dialogue between governments and
technology companies would help to ensure that internet-based technologies
develop in a politically sustainable context of shared values and agreed
responsibilities, suggests the report.

(Source: weforum.org)

4. Sports

30. Roger
Federer becomes oldest world no.1 in history

Roger Federer added yet another record to
his vast collection when he officially returned to world number one as the latest
ATP rankings were released on 19 February. The 36-year-old beat Andre Agassis
record as the most senior player to reach the summit of the sport.

(Source:
International Business Times dated 20.02.2018)
_

BCAJ Admin

From Published Accounts

Section B:
Illustration of qualified Limited Review Report on Consolidated Financial Results

Ed ucomp Solutions Ltd . (quarter ended 31st December 2015)

From Notes to Consolidated Unaudited Financial Results (extracts)

2. The auditors have qualified their limited review report on the consolidated unaudited financial results of the Company for the quarter ended December 31, 2015, quarter ended September 30, 2015, quarter ended June 30, 2015 and audit report for the year ended March 31, 2015 and limited review report for the quarter ended December 31, 2014 was also qualified in respect of the following matter:

As per the terms of Master Restructuring Agreement and approved Corporate Debt Restructuring Scheme (CDR) of Educomp Infrastructure and School Management Limited (EISML), a subsidiary company, there are certain assets amounting Rs. 32,075.33 lakh (at cost) which have been identified for sale in a time bound manner. The lead bank carried out a valuation of these assets which are indicative in nature. Market valuations have not been carried out by EISML and its step down subsidiaries, as some of these assets are not ready for sale due to pending regulatory approvals/ permissions.

Based on recent firm offers and valuation reports, the Management believes that the market value of these investments is higher than as considered under the indicative valuation reports and differences, if any, are temporary only. Therefore, no adjustment is required to the carrying value of these assets.

3. The auditors have drawn attention in their limited review report on the consolidated unaudited financial results of the Company for the quarter ended December 31, 2015 in respect of the following matters:

a) Due to inadequacy of the profits, managerial remuneration paid/provided, by the Company to one of its whole time director during the quarter ended June 30, 2015 and year ended March 31, 2015 and by one of its subsidiary, Educomp Infrastructure and School Management Limited (EISML) to its wholetime director during the year ended March 31, 2015, is in excess of limits prescribed u/s 197 and section 198 read with Schedule V to the Companies Act, 2013.

Further, due to inadequacy of the profits in the previous financial year, managerial remuneration paid/provided, by the Company to one of its whole time director and by one of its subsidiary EISML to its whole-time director/Managing Directors during financial year ended March 31, 2014, was in excess of limits prescribed under Section 198, Section 269, Section 309 read with Schedule XIII of the Companies Act, 1956.

EISML has submitted an application to the Central Government for waiver/approval of managerial remuneration pertaining to year ended March 31, 2014 and March 31, 2015.

The management of the Company is in the process of making necessary applications to the Central Government to obtain its approval for the waiver/ approval of the remuneration so paid/recorded in year ended March 31, 2014, March 31, 2015 and quarter ended June 30, 2015 in due course.

b) Due to longer than expected gestation period of schools, recoverability of trade receivables amounting Rs.21,255 lakh from Trusts to the subsidiary Company EISML has been slow. The Management of EISML, is regularly monitoring the growth in schools and their future projections, based on which, the Management believes that the trade receivables from the Trusts are fully recoverable.

c) The Group has assessed the business projections of six companies in the Group, namely, Educomp Infrastructure and School Management Limited, Educomp Online Supplemental Service Limited, Educomp Child Care Private Limited, Educomp Professional Education Limited, Vidya Mandir Classes Limited, Educomp Intelliprop Ventures Pte Ltd. (Formerly known as Educomp Intelprop Ventures Pte Ltd.) and its associate Greycells18 Media Limited., for evaluating the recoverability of Group’s share of net assets and has concluded that their businesses are sustainable on a going concern basis. The Company has evaluated the recoverability of its share of net assets held through these Companies, using business valuations performed by independent experts, according to which the decline in the carrying value of net assets is considered to be temporary. The said evaluation is based on the long term business plans of its subsidiaries/associate as on March 31, 2015 and concluded that no adjustments to the carrying value of its share in net assets is required to be recorded in the consolidated unaudited financial results of the Company for the quarter ended December 31, 2015.

d) During earlier years, EISML, a subsidiary of the Company had given capital advances amounting to Rs. 25,329 lakh to various parties for acquisition of fixed assets. The Management of EISML as part of its regular recoverability evaluation process had identified certain portions of capital advances which were doubtful of recovery or did not have recoverable value equivalent to the book value. Accordingly, on a prudent basis, till March 31, 2015 the Management had recorded a total provision of Rs. 20,175.48 lakh in the books of accounts towards such capital advances or portions thereof, which were doubtful of recovery.

The Management is continuously monitoring the settlement of these balances and is regularly following up with respective parties for recovery of the said capital advances. The Management believes that other capital advances, which have not been provided for, although have been long outstanding but are fully recoverable and hence, existing provision recorded in books is sufficient to cover any possible future losses on account of non recovery of such capital advances.

e) The Group’s management has reviewed business plan of its joint venture, Educomp Raffles Higher Education Limited which had advanced loans amounting to Rs. 5,147 lakh to Jai Radha Raman Education Society (Society) and its subsidiary Millennium Infra Developers Limited which had trade receivables of Rs. 6,021 lakh from the same Society under contractual obligations. The Group’s management has also considered the business plan of the Society and estimated market value of its net assets, based on which no adjustment is required in carrying value of its share of net assets in such joint venture. The Group’s holding in the joint venture is 41.82%. The consolidated financial results of Educomp Raffles Higher Education Limited are not available with the Company, hence there is no update available on the above status.

f) The Group had evaluated the recoverability of intangible assets in form of Brand ‘Universal’ in one of its step down subsidiary, by using valuations performed by an independent valuation expert. The said evaluation was based on long term business plans and underlying assumptions used for the purpose of valuation, which in view of the Management were realistic and achievable by the subsidiary. Based on revised business plans which entailed scaling down the operation of ‘Universal’ brand of schools, the management had recorded an impairment of Rs. 4,527 lakh to this asset in the year ended March 31, 2015.

g) Pursuant to implementation of approved CDR scheme, certain lenders have disbursed fresh corporate loans to the Company and corresponding trade receivables were bought from Edu Smart Services Private Limited (ESSPL) together with future business relating to these customers. Due to this restructuring, the remaining receivables in ESSPL may not yield adequate surplus to discharge its liability towards the Company for trade receivables and redemption of Redeemable non-convertible preference shares. However, the approved CDR scheme has mandated merger of ESSPL with the Company and accordingly, the Company has initiated the process and has taken the approval of the Board of Directors in the board meeting held on 13th January 2015. The impact for the amalgamation shall be given/recorded in the books of accounts upon obtaining approvals and implementation of the Scheme.

h) The Company has incurred substantial losses and its net worth has been significantly eroded. Based on Company’s projected cash flows, it shall have sufficient funds to run its operations in foreseeable future. As regards availability of requisite funds to meet its debt related obligations including those falling due in the year 2015-16 as per its CDR package executed with Company’s lenders, the Company intends to monetize its identified investments, receivables and assets to meet the necessary obligations. The Company is also taking several measures to improve operational efficiencies and other avenues of raising funds.

The management is confident that with the above measures and continuous efforts to improve the business, it would be able to generate sustainable cash flow, discharge its short-term and long term liabilities and recover & recoup the erosion in its net worth through profitable operations and continue as a going concern. Accordingly, these consolidated unaudited financial results have been prepared on a going concern basis and do not include any adjustments relating to the recoverability and classification of recorded assets, or to amounts and classification of liabilities that may be necessary if the entity is unable to continue as a going concern.

i) The Company’s subsidiary, Educomp Infrastructure & School Management Limited has incurred losses and the subsidiary debt related obligation in the form of Funded Interest Term Loan has been converted into 0.1% Cumulative Compulsory Convertible Preference Shares during the earlier quarters. Based on subsidiary company’s projected cash flows, it shall have sufficient funds to run its operations in foreseeable future. As regards availability of requisite funds to meet its debt related obligations including those falling due in the year 2015-16 as per the CDR package executed with subsidiary’s lenders, the subsidiary intends to monetise its assets identified for sale to meet the necessary obligations. The subsidiary is also taking several measures to improve operational efficiencies and other avenues of raising funds.

The management is confident that with the above measures and continuous efforts to improve the business, it would be able to generate sustainable cash flow to discharge its short-term and long term liabilities and recover and recoup the erosion in its net worth through profitable operations and continue as a going concern. Accordingly, these consolidated unaudited financial results have been prepared on a going concern basis and do not include any adjustments relating to the recoverability and classification of recorded assets, or to amounts and classification of liabilities that may be necessary if the entity is unable to continue as a going concern.

j) The Company’s step down subsidiary, Knowledge Vistas Limited has taken land from Lavasa Corporation Limited on lease vide lease agreement dated June 30, 2009 for a period of 999 years to construct an international residential school. Further, this subsidiary has entered into a sublease agreement with Gyan Kunj Educational Trust (GKET) to sub lease the school building. As per the sub lease agreement, GKET shall be liable to pay lease rental to the subsidiary from the year in which it has cash surplus. GKET has started its operations in the Academic Session 2011-12 but due to certain environmental matters, GKET decided to suspend its operations and is waiting for favourable business opportunities.

On the basis of the valuation reports from an independent valuer, the carrying cost of the said subsidiary’s assets is not less than its net realisable value. Hence, the management doesn’t anticipate any asset impairment. These consolidated unaudited financial results have been prepared on a going concern basis and do not include any adjustments relating to the recoverability and classification of recorded assets, or to amounts and classification of liabilities that may be necessary if the entity is unable to continue as a going concern.

6. The Group is in the process of determining and identifying significant components of fixed assets as prescribed under Schedule II to the Companies Act 2013 and the resultant impact, if any, will be considered in due course during the financial year 2015-16.

From Auditors’ Limited Review Report (extracts)
4. As per the terms of Master Restructuring Agreement (MRA) dated December 28, 2013 entered into pursuant to approved Corporate Debt Restructuring Scheme to restructure debt of Educomp Infrastructure and School Management Limited (EISML), a subsidiary of the Company, certain tangible fixed assets of EISML and EISML’s subsidiaries have been Identified for sale in a time bound manner. As per the valuation of such tangible fixed assets as evaluated and disclosed in the approved Corporate Debt Restructuring Package, some of these assets are expected to have lower realizable value than their carrying values. Such tangible fixed assets having total carrying value of Rs. 32,075.33 lakh as at December 31, 2015 (as at December 31, 2014 Rs. 32,196.76 lakh) are included in the tangible fixed assets.

The Management has not carried out any evaluation of impairment of these assets at the close of the quarter and no provision for impairment has been recorded, as required by Accounting Standard 28 ‘Impairment of Assets’.

As we are unable to obtain sufficient appropriate audit evidence about the extent of recoverability of carrying value of these assets, we are unable to determine whether any adjustments to these amounts are necessary.

Our audit opinion on the consolidated financial statements for the year ended March 31, 2015 and our limited review reports for the quarters ended September 30, 2015 and December 31, 2014 were also qualified in respect of the aforesaid matter.

5. Based on our review conducted as above, and on consideration of the reports of the other auditors and subject to the possible effects of the matter described in paragraph 4 above, nothing has come to our attention that causes us to believe that the accompanying Statement, prepared in accordance with applicable accounting standards as specified u/s. 133 of the Companies Act, 2013 read with Rule 7 of the Companies (Account) Rules, 2014 and other recognised accounting practices and policies has not disclosed the information required to be disclosed in terms of Regulation 63 of the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 including the manner in which it is to be disclosed, or that it contains any material misstatement.

6. We draw attention to the following matters in the notes to the Statement:

a) Note 3(a) regarding managerial remuneration paid/ payable to one of the whole time director of the Holding Company for the quarter ended June 30, 2015, year ended March 31, 2015 and year ended March 31, 2014 and whole time director of one of its subsidiary Company, Educomp Infrastructure and School Management Limited during the year ended March 31, 2015 and the year ended March 31, 2014, in non-compliance with the requirements of section 197 and section 198 read with schedule V to the Companies Act, 2013 and section 198, section 269 and section 309 read with Schedule XIII to the Companies Act, 1956 respectively, for which the Central Government’s approval has not been obtained.

b) Note 3(b) wherein a subsidiary company, Educomp Infrastructure and School Management Limited has considered its long outstanding Trade Receivables due from certain Trusts which are due for more than one year, as good and fully recoverable.

c) Note 3(c) with respect to Management’s assessment of recoverability of Group’s share of net assets as regards investment in six companies of the Group, namely, Educomp Infrastructure and School Management Limited, Educomp Online Supplemental Service Limited, Educomp Child Care Private Limited, Educomp Professional Education Limited, Vidya Mandir Classes Limited, Educomp Intelliprop Ventures Pte. Ltd.(formerly known as Educomp Intelprop Ventures Pte. Ltd.) and its associate, Greycells18 Media Limited.

d) Note 3(d) which explains Management’s view on recoverability of certain significant amount of capital advances given by the Group and which have been outstanding for a long period of time.

e) Note 3(e) which explains Management’s view on recoverability of certain loans advanced to Jai Radha Raman Education Society (the society) by Educomp Raffles Higher Education Limited, a joint venture (JV), and trade receivables due to JV’s subsidiary Millennium Infra Developers Limited from the society under contractual obligations.

f) Note 3(f) with respect to Management’s assessment, based on valuation performed by an independent expert, of recoverability of intangible assets in the form of brand ‘Universal’ in one of its step down subsidiary named, Educomp APAC Services Limited. The recoverability of the intangible assets is significantly dependent on the step down subsidiary’s ability to achieve long term futuristic growth plan envisaged in the related assumptions used for the purpose of valuation.

g) Note 3(g) wherein the Holding Company has not considered impairment/diminution of trade receivables from/investment in Edu Smart Services Private Limited (ESSPL) in the intervening period, in view of proposed merger of ESSPL with the Holding Company.

h) Note 3(h) in respect of the Holding Company, in the opinion of the management, despite incurring net losses, including during the quarter ended December 31, 2015 and erosion of net worth as at December 31, 2015, the unaudited consolidated financial results have been prepared on a going concern basis in view of matters more fully explained in the said note.

i) Note 3(i) in respect of one of the Holding Company’s subsidiary, Educomp Infrastructure & School Management Limited, in the opinion of the management, despite incurring losses, including during the quarter ended December 31, 2015 and erosion of net worth as at December 31, 2015, the unaudited consolidated financial results have been prepared on a going concern basis in view of matters more fully explained in the said note.

j) Note 3(j) in respect of one of Holding Company’s step down subsidiary, Knowledge Vistas Limited, which indicates that the company has suspended its operation and is waiting for favourable business opportunities. Despite existence of these conditions, along with other matters more fully explained in the said note, the unaudited consolidated financial results have been prepared on going concern basis.

Our report is not modified in respect of these matters

BCAJ Admin

From The President

Dear Members,

By the time you read this, India must have enjoyed and celebrated its most awaited colourful festival of Holi. This year I would like to extend my Holi Greetings, with a prayer for the entire country…that as winter turns into spring, we may all be rejuvenated and allow good to triumph over evil in our lives and the world around us. I also hope that as we splash and frolic in multiple colours, may we accept the diversity of all people and grow together.

Let’s dive into the month that was…beginning with the Budget 2018. It was a witty person who once said, “A budget is what you stay within if you go without.” Our FM Shri Jaitley had to walk a delicate tightrope in allocating adequate resources to only the most compelling issues. The media had a field day in reporting the Budget and all the views and criticism that was generated, but I believe this year’s Budget is an effective and very viable stepping-stone for the economy. It has a very judicious mix of populist initiatives and disciplinary measures that will continue to spur growth in the years ahead. Agriculture, rural development, MSME and the world’s largest healthcare program were the key features of the budget.

With a total expenditure of Rs.24.4 trillion, the fiscal deficit is set to escalate marginally to 3.3% of the GDP in the year ahead. But that was not the big dampener that sent the stock exchanges spiralling downwards. It was the much-anticipated Long Term Capital Gains Tax of 10% without the benefit of indexation. Both individual and institutional investors dumped stocks causing the Sensex to crash over 1100 points wiping around 9.6 lakh crore in just three market days.

This was coincidentally the start of the global mayhem. The US Dow collapsed unexpectedly and dramatically sending ripples across the world. This situation was inexplicable as the World Economic Forum at Davos reported optimism in the growth of the global economy. Trump’s tax reforms were seeing results as corporate earnings and jobs were growing. So, what was spooking the markets? Was it the hardening of US interest rates? Or the expected $1 trillion deficit compounded by dropping tax revenues?

However, a positive aspect was the unanimous agreement of top global leaders at the ET Global Business Summit that India is poised to be a $10 trillion economy by 2030 – that’s four times the current GDP. India could tap into the tailwinds generated by the world economy that’s currently growing at 3.9% to surge ahead at 9% in the years ahead. E-Commerce could also be a key driving force of India’s growth story. With higher internet penetration, e-commerce sales could balloon to $150 billion in 10 years.

India’s meteoric growth will also propel innovation, which will in turn accelerate growth. To achieve all this, India will need to streamline its tax structure, improve digitisation and infrastructure as well as skill its workforce. With international confidence running high, we need to seize the opportunity and reclaim our position as a leading economy in the world.

The talk of the country for the past few weeks has been the PNB scam of Rs. 114 million and growing. This perfectly orchestrated scam has devastated PNB’s share value by 25% and has dragged down several other public-sector banks. In the wake of the PNB scam, some more frauds have been unearthed; raising some very pertinent questions.

Hon. PM Shri Modi expressed his displeasure as he declared, “the system will not tolerate loot of public money”. He also took the regulatory institutions to task saying that they need to discharge their responsibility with utmost sincerity and integrity. FM Jaitley too found fault with RBI, management of PNB and the auditors for being unable to detect the scam. He said that, “If you periodically have frauds of this kind the entire effort of ease-of-doing business goes into the background”. He has asked the supervisory agencies to introspect and deploy additional systems to prevent any further recurrence.

The government has made it clear that CAs cannot get away just by citing red flags. It is exploring measures to fix auditor responsibility in frauds. In response to the alleged lapses on part of auditors, ICAI has been proactive. It has served show-cause notices to the auditors. It has requested RBI to share a list of corporate borrowers with over Rs. 2,000 crore loan outstanding in PSBs so that their accounts can be examined for any violation. It has also requested SEBI and CBI to share their findings to enable it to act against any chartered accountant involved in fraud.

After this spell of not-so-good news…here’s a rainbow. Schools in Delhi are soon to have ‘Happiness Classes’. Experts debate on whether it’s a subject that can be taught, but a Good Life course in Yale on similar lines has achieved unexpected popularity. Here are some details that could help us spark some happiness in our lives too!

The course underlines that a pivotal factor of our happiness is our intentional effort – especially practising gratitude and kind behaviours. It cites research which suggests that changing life circumstances won’t make us happy…to be happy we need to consciously work on it. Students are taught that in making others happy, you can make yourself happy. Students use tools from psychology to live their happiness goals. In addition to readings and assessments, the students are encouraged to ‘rewire’ through a series of exercises that make them happier, healthier and resilient. It’s still a new concept, but I hope it catches on and spreads to schools and colleges across India.

This year, Mr. S. E. Dastur, Senior Advocate addressed his last & the 30th BCAS Public Lecture Meeting on ‘Direct Tax Provisions of the Finance Bill, 2018’. Three decades is a long time in any organisation’s time span. We at BCAS, were fortunate enough all these years to avail of his masterly analysis year after year. This year apart from the 1,000+ personally present, we had more than 11K viewers from 13 different countries who joined us through Live Screening.

As the Society enters its 69th year of existence, we continue to acknowledge your affiliation with us and value the same. Hope you find this platform adding value and nurturing you to groom yourself in the profession. I request to please renew your Membership & Subscription for the coming financial year 2018-19 to avoid any disruption of BCAS membership benefits. Kindly note, the renewal notice along with the form has been sent to your addresses.

The Society has lined up number of programs in the months of March and April. I request members to take benefit of the same.

Wishing you a Happy Gudi Padwa, Ram Navami, Mahavir Jayanti & Good Friday!

Feel free to write to me on president@bcasonline.org

BCAJ Admin

Direct Taxes

76. Procedure, Formats and Standards for ensuring secured transmission of electronic communication for the purpose of Rule 127 r.w.s 282 notified –

Notification No. 2 dated 3rd February 2016

77. Clarification of the term ‘initial assessment year’ in section 80lA (5) of the Income-tax Act, 1961 –

Circular No. 1 dated 15th February 2016

It is clarified that the term ‘initial assessment year’ would mean the first year opted for by the assessee for claiming deduction u/s 80lA out of a slab of fifteen ( or twenty) years, as prescribed under the relevant sub-section.

78.Atal Pension Yojana (APY) notified as a Pension Scheme for the benefit of section 80CCD –

Notification No. 7 dated 19th February 2016

79. Time-limit of six months prescribed under section 154(8) of the Act is to be strictly followed by the Assessing Officer while disposing applications filed by the assessee/ deductor/collector under section 154 of the Act. –

Instruction No. 1 dated 15th February 2016

New form 9A prescribed and Rule 17 and Form 10 amended – Forms to be furnished by the charitable trust to the Income tax authorities before the due date of filing of the return of income-

Notification No. 3 dated 14th January 2016- Income-tax (1st Amendment) Rules, 2016

81. Certain technical glitches solved regarding online issuance of Certificates u/s. 195(2) and 195(3) of the Act –

TDS Instruction no. 51 dated 4.2.16

82. Procedure for adjustment of refunds in case where notice u/s. 245 of the Act has been issued–

Office Memorandum dated 29.01.2016

CBDT has stated that in cases where the tax payer has contested the demand raised by the department, the jurisdictional AO would be issued a reminder to either confirm or make appropriate changes in the demand based on the contention of the assessee. This needs to be responded by the AO within 30 days, post which CPC would issue the refund without adjustment of the demand in absence of any communication from the AO.

BCAJ Admin

Corporate Law Corner

16.
Vivek Vijay Gupta vs. Steel Konnect (India) (P.) Ltd.

[2018] 90 taxmann.com 78 (NCLT – Ahd.)

Date of Order: 15^thJanuary, 2018

Section 31 read with section 30 and 25 of
the Insolvency and Bankruptcy Code, 2016 – NCLT does not have any power or
authority to interfere with the decision of committee of creditors in rejecting
a resolution plan submitted for its consideration.

FACTS

Financial Creditor instituted Insolvency
proceedings against S Co u/s. 7 of the Insolvency and Bankruptcy Code, 2016
(“the Code”). The appeals filed by SCo were dismissed by the National Company
Law Tribunal (“NCLT”) and subsequently by the Supreme Court. Resolution
Professional (“IRP”) was appointed and a valuation report was finalised by him
on 10.11.2017 which pegged the value of S Co at Rs. 39 crore. Promoters of S Co
submitted a resolution plan for Rs. 85 crore on 25.11.2017. In view of the
Ordinance passed by the Central Government amending section 29 of the Code, the
resolution plan submitted by the Promoters was rejected as they were not
eligible to submit a resolution plan and the Committee of Creditors (“COC”) did
not accept the same. Pursuant to an advertisement filed by the IRP an Asset
Reconstruction Company (“ARC”) filed a resolution plan for Rs. 93.42 crore
which was also rejected by the IRP. ARC filed a modified plan which was placed
before the COC and the same was also rejected by the COC.

Present application was filed by the
Promoter / Director of S Co alleging that the plan submitted by the ARC was in
compliance with the provisions of the Code and that COC had simply rejected the
plan with a remark that the same was not in compliance with the Code without
assigning any reasons even though the plan was in the interest of S Co and its
stakeholders. It was prayed that NCLT should intervene and overturn the
decision of COC which rejected the resolution plan.

HELD

NCLT observed that it has two fold powers
granted to it u/s. 31 of the Code, namely:

(i) accept the plan which is
approved by the COC; or

(ii) reject the plan which
though approved by the COC does not meet the requirements of the Code.

In case if no resolution plan is placed before
NCLT before the expiry of the Insolvency Resolution Process period or the
extended period, then NCLT is bound to pass an order for liquidation. Section
33(1)(b) of the Code gives authority to the NCLT to order liquidation in case
it rejects the resolution plan u/s. 31(2) for non-compliance of the
requirements specified therein. Therefore, even at the stage of ordering
liquidation, NCLT has no authority to consider a resolution plan that was
rejected by the COC.

It was observed that NCLT does not have any
power to sit over the judgment on resolution of COC in the rejecting the
resolution plan. The Tribunal held that it had no power to or authority to
interfere with the decision of the COC in rejecting the resolution plan.

When the information is there before the COC
regarding the non-compliance of the requirements of the Code and Regulations,
COC is perfectly justified in rejecting the resolution plan. It was held that
there were no facts and circumstances that warrant interference by NCLT in the
rejection of the resolution plan.

The IRP, in carrying out its duties,
submitted the plan which it received from the ARC before the COC. It also
brought out the fact that the same was not in accordance with the provisions
contained in the Code. The NCLT further observed that in light of the fact
pattern of this case, there was no lapse on part of the IRP in carrying out its
duties enumerated under the Code.

There was a contention raised that the
Promoters and directors of S Co (who filed the application) are persons
aggrieved or not. Since the resolution plan was in the interest of S Co and its
stakeholders, it could be said that its promoters and directors were also
aggrieved persons. However, NCLT observed that although promoters and directors
were invited to be a part of the meeting of COC they did not choose to attend
the same. Without demonstrating how the plan was beneficial to S Co and its
stakeholders it could not be held that the Promoters / directors were aggrieved
persons.

The NCLT, thus rejected the application
filed before it.

17. Bengal Chemists and Druggists Association
vs. Kalyan Chowdhury

[2018] 90 taxmann.com 112 (SC)

Date of Order: 02^ndFebruary, 2018

Section 421 read with section 433 of the
Companies Act, 2013 – Proviso to section 421(3) is peremptory in nature – Any
appeal filed after the period specified therein becomes time barred – Delay
cannot then be condoned by resorting to the provisions of Limitation Act, 1963.

FACTS

B Co being aggrieved by an order passed by
National Company Law Tribunal filed an appeal before the National Company Law
Appellate Tribunal (“NCLAT”). NCLAT dismissed the appeal on the grounds that
the same was filed 9 days after the expiry of period of limitation of 45 days
as well as further period of another 45 days. NCLAT held that the appeals were
not maintainable in lines with section 421(3) of the Companies Act, 2013 (“the
Act”).

B Co filed an application before the Supreme
Court against the order of NCLAT dismissing the appeal.

It was argued before the Supreme Court that
section 421(3) of the Act does not contain the language of section 34(3)
proviso of the Arbitration Act, 1996 which contains the words “but not
thereafter”. It was further argued that in terms of section 433 of the Act,
provisions of the Limitation Act, 1963 shall, as far as may be, apply to
Appeals before the Appellate Tribunal. Section 5 would therefore be applicable
to condone the delay beyond the period of 90 days.

HELD

The Supreme Court considered the provisions
of sections 421 and 433 of the Act. It observed that a cursory reading of
section 421(3) made it clear that the proviso provides a period of limitation
different from that provided in the Limitation Act, and also provides a further
period not exceeding 45 days only if it is satisfied that the appellant was
prevented by sufficient cause from filing the appeal within that period.

It was observed that section 433 cannot
apply because the provisions of the Limitation Act only apply “as far as may
be”. There is a special provision contained in proviso to section 421(3) and as
a corollary, section 5 of the Limitation Act cannot apply.

The Supreme
Court held that 45 days is the period of limitation, and a further period not
exceeding 45 days is provided only if sufficient cause is made out for filing
the appeal within the extended period. If the Court was to accept the argument
put forth by the Applicant, it would mean that notwithstanding that the further
period of 45 days had elapsed, the NCLAT may, if the facts so warrant, condone
the delay. This would be to render otiose the second time limit of 45 days,
which is peremptory in nature.

In coming to this conclusion, the Supreme
Court relied on its own decision in the case of Chhattisgarh SEB vs. Central
Electricity Regulatory Commission, 2010 (5) SCC 23. The Supreme Court also
distinguished the decisions which were relied upon by the counsel for B Co.

The appeal filed by B Co was thus dismissed
by the Supreme Court.

18. Prem Prakash Sethi vs. Union of India

[2018] 89 taxmann.com 234 (Delhi)

Date of Order: 10^th January, 2018

Section 252 of Companies Act, 2013 read
with Condonation of Delays Scheme, 2018 – Name of company was struck-off from
the Register of Companies owing to non-compliances – Petition filed u/s. 252 was still pending before the NCLT – Directors of the
company could avail the benefit of Condonation of Delays Scheme, 2018

FACTS

S Co was in an active business and it
defaulted in making certain statutory compliances under Companies Act, 2013
(“the Act”) and requisite returns were not filed by them. Registrar of
Companies (“ROC”) believed that directors of S Co were disqualified u/s.
164(2)(a) of the Act and that S Co was disqualified u/s. 248(1) of the Act.

ROC
therefore, issued a show cause notice in March 2017 requiring S Co to show
cause as to why it was not liable to be removed from the Register of Companies.
S Co failed to respond to this notice, resulting in passing of an order of
removal of the company from the Register of Companies. S Co then invoked remedy
available u/s. 252(3) of the Act by filing a petition with the National Company
Law Tribunal (“NCLT”) praying for revival of
the company.

Director of S Co filed the present writ
petition before the High Court expressing that it was desirous of availing the
Condonation of Delays Scheme, 2018 (“CODS-2018”) but was unable to do so
because name of S Co had been struck off from the Register of Companies. It was
prayed before the High Court that they be permitted to avail the benefit of
CODS-2018, subject to the outcome of the proceedings initiated u/s. 252 of the
Act.

S Co also conceded that non-filing of
returns was a bonafide mistake on part of the company and it was stated that it
was ready to submit all the relevant documents which were required by the ROC.

HELD

The High
Court observed that S Co deserves to be fairly given an opportunity to avail
the benefit of CODS-2018 given that order striking off its name from the
Register of Companies was itself pending consideration before the NCLT.

The High Court therefore, directed S Co to
file all the requisite returns in relation to the company and submit necessary
application along with requisite charges to the ROC in order to enable it to
avail the benefits provided under the CODS-2018.

The High Court also directed NCLT to dispose
the application expeditiously given that benefit under CODS-2018 is available
only up to 31.03.2018. In the event the NCLT is unable to dispose of the appeal
within the time as requested for the reasons that are not attributable to S Co,
it was directed that the ROC shall ensure that the Scheme under CODS-2018 is
extended in respect of the directors of S Co.

The High Court held that directors of S Co
would not be deprived of the opportunity to avail the CODS-2018 only on account
of pendency of the petition before NCLT.

It was also clarified that if directors of S
Co did not avail of the CODS-2018 or file necessary documents then, in addition
to other consequences, they would also be liable for prosecution for Contempt
of Court.

Petition filed by S Co was thus allowed.

19.
Real time Interactive Media Pvt. Ltd. vs. Metro Mumbai Infradeveloper Pvt. Ltd.

[2018] 90 taxmann.com 89 (Bombay)

Date of Order: 12^th January, 2018

Section 271 read with section 248 of
Companies Act, 2013 – High Court has the power to order winding up of company
although its name has been struck off from the Register of Companies.

FACTS

R Co was engaged in the business of
publishing and managing advertisements on BEST TV LED screens in the BEST buses
(BEST TV) running in Mumbai. R Co was the sole agent of BEST in respect of
airing such advertisements on BEST TV. M Co engaged R Co for displaying
advertisements on BEST TV in 1300 Non AC buses and 250 AC buses for a period of
3 months from 07.10.2011 till 07.01.2012 for a consideration of Rs. 15 lakhs
plus taxes. In terms of the agreement, R Co aired those advertisements and
raised invoices of Rs. 5,16,665 in respect of each of the months for which the
service was provided. Invoices raised also mentioned that interest would be
charged if the same were not paid on or before the due date.

M Co paid in installments a total amount of
Rs. 5 lakhs and as on 16^th April, 2012 after adjusting this Rs. 5
lakhs from the total invoice of Rs. 15,49,995 there was a balance outstanding
of Rs. 10,49,995. As no payments came forth, R Co issued a statutory notice
dated 27.05.2014 to M Co. M Co did not file any reply to the statutory notice
issued to it.

R Co urged before the Court that the
registered address shown in the Company Master Data is the same address to
which notice under Rule 28 of the Companies Court (Rules), 1959 (“the Rules”)
has been sent and that is the same address which reflected even in the cause
title to which statutory notice was also sent. As on date, recent MCA website
extract indicates the status of M Co as “Strike Off”.

The Court was approached to decide whether
winding up proceedings can be initiated against a company which has been struck
off the Register of Companies.

HELD

The High Court observed that in light of the
facts it was possible to hold that the statutory notice was duly served as
required under Rule 28 of the Rules.

The High Court after examining the
provisions of section 248 of Companies Act, 2013 (“the Act”) observed that
there was nothing in section 248 which shall affect the power of the Court to
wind up a company the name of which has been struck off from the register of
companies. The effect of company notified as dissolved was that the company
shall on and from the date mentioned in the notice u/s. 248(5) of the Act cease
to operate as a company and the Certificate of Incorporation issued to it shall
be deemed to have been cancelled from such date except for the purpose of
realising the amount due to the company and for the payment or discharge of the
liabilities or obligations of the company.

The High Court held that just because the
name of the company was struck off the register u/s. 248 of the Act, the same
will not come in the way of the Court to pass an order of winding up of
company.

It was further observed that M Co neither
filed any affidavit opposing the petition nor did it reply to the statutory notice
that was duly served. The High Court had the power to order winding up on the
presumption of inability to pay the amounts claimed and not denied. The High
Court held that where no response has been made to the statutory notice, the
company runs a risk of winding up petition being allowed. By virtue of section
434 of the Companies Act, 1956 a presumption of the indebtedness could be
legitimately drawn by the court where no reply to the statutory notice was
forthcoming.

The High Court thus, ordered winding up of
M Co and proceeded to appoint Official Liquidator who would take charge of the
winding up proceedings to be carried out against M Co. _

BCAJ Admin

Allied Laws

26 Arbitration – Main agreement not registered – Arbitration clause cannot be acted upon.
[Arbitration and Conciliation Act, 1996 Section 7, 11, 37, 38]

Ansal Properties and Infrastructure Limited vs. Jhamru Chandaram and Ors. AIR 2017 RAJASTHAN 52

An application was filed before the court u/s. 11 of the Arbitration and
Conciliation Act, 1996, praying for appointment of the sole Arbitrator
to adjudicate its dispute with the respondents. Applicant signed two
MOUs. However, it was contested that the MOU had been annulled.

It was argued that an arbitral agreement within the MoU/agreement to sale, even if an unregistered document, can be used as evidence for collateral purpose as provided in proviso to section 49 of the Registration Act and is severable from the main contract.

The question which arose was whether any unstamped or insufficiently stamped agreement/MoU for sale containing clause can be acted upon.

It was held that the question as to insufficiency of stamp duty in view of section 16 of the Act should be left to be decided by the Arbitrator, cannot be countenanced and has to be rejected in view of clear law laid down by the Supreme Court in SMS Tea Estates Pvt. Ltd. which mandates that such a issue has to be decided in the application u/s. 11 of the Act itself.

27 Interrogation – Presence of Counsel – Only to avoid coercion, if any. [Customs Act, 1962, Section 108]

Sangit Agarwal vs. The Director General, Directorate of Revenue Intelligence and Ors . 2017 (356) E.L.T. 518 (Del.)

A prayer as to permit the interrogation in presence of the interrogatee’s Advocate who would sit at a visible distance not at audible range, was made by the petitioner.

It was observed that a lawyer has no role to play whatsoever during the interrogation, except to be at a distance beyond hearing range to ensure that no coercive methods were used during the interrogation.

It was accordingly directed that the petitioners’ advocate should be allowed to be present during the interrogation of the petitioners. He/they should be made to sit at a distance beyond hearing range, but within visible distance and the lawyer must be prepared to be present whenever the petitioners are called upon to attend such interrogation.

28 Power of Attorney – Intimation not given after death – Not valid to act as power of attorney. [Mines and Minerals Act, 1957 (Section 13, R.25A)]

State of Odisha vs. Government of India and Ors. AIR 2017 (NOC) 1023 (ORI.)

The question for consideration was whether the intimation of the death of the grantee was given to the State Government immediately after his death, but there was no document to support the said contention, there could be grant of additional time for fulfillment of statutory compliance, to the power of attorney holder, as the period of lease had already expired.

It was observed that Rule 25-A of the Mineral Concession Rules, 1960 provides that where an applicant for grant or renewal of mining lease dies before the order granting him mining lease, the application for grant of mining lease shall be deemed to have been made by his legal representatives. The question of the power of attorney acting on behalf of the grantee as legal representative would arise only when intimation of the death of the grantee is given to the State Government. Without such intimation having been given, it would be presumed that the power of attorney continued to act as power of attorney on behalf of a deceased person. A power of attorney can act on behalf of a living person, be it a natural person or juristic person. Once a person, who has given power of attorney, is no more there, the question of power of attorney continuing to act on behalf of such deceased person, would not arise. Had it been a case of the legal representative of the grantee having informed the State Government of the death of the grantee, and then proceeded with the matter as legal representative of the grantee, then the position would have been different. Such is not the case in hand.

In view of the above, it was held that there was no merit in the case of legal heir of the grantee for grant of additional time for fulfillment of statutory compliance.

29 Nominee – No beneficial ownership over persons entitled to inheritance [Companies Act, 1956, Section 109A]

Shakti Yezdani and Another vs. Jayanand Jayant Salgaonkar and Ors. (2017) 200 Comp case 143
(Bom) (HC)

The questions for consideration was whether a nominee of a holder of shares or securities is entitled to the beneficial ownership of such shares or securities to the exclusion of the other persons entitled to inherit the estate of the holder as per the law of succession.

It was observed by the Court that as per the consistent view taken by the Apex Court under various provisions held that the nominee does not get an absolute title to the property subject matter of the nomination. The reason is by its very nature when a share holder or a deposit holder or other, makes a nomination during his lifetime, he does not transfer his interest in favour of the nominee. It is always held that the nomination does not override the law in relation to testamentary or intestate succession. The provisions regarding nomination are made with a view to ensure that the estate or the rights of the deceased, subject matter of nomination are protected till the legal representatives of the deceased take appropriate steps. The object of the provisions of the Companies act is not to either provide a mode of succession or to deal with succession. The object of section109A is to ensure that the deceased shareholder is represented by someone.

In view of the same, it was held that the so called vesting u/s.109A does not create a third mode of succession and the nominee does not get a beneficial ownership of such shares or securities to the exclusion of the other persons entitled to inherit the estate.

30 Recovery of tax arrears – No charge on defaulter’s property – Hence no liability of the purchaser of such defaulter’s property. [Tamil Nadu Sales Tax, 1959, Section 24(2)]

Noor M. Saied vs. Commercial Tax Officer, Chennai. 2018 (9) G.S.T.L (Mad.)

A Sale was effected in a public auction, where the petitioner was a successful bidder. Admittedly, there was no charge on the property in question for the alleged sale tax arrears. At a later point in time, the respondent sent a notice to the petitioner that the sales tax arrears was to be paid by the petitioner, which was earlier payable by the Seller or the defaulter.

The issue to be decided was whether the petitioner can be proceeded against for Sales tax arrears payable by the defaulter.

It was held that, since there was no charge on the property and there was no doubt about the purchase made by the Petitioner being bonafide, hence the petitioner cannot be proceeded against for the recovery of the sales tax arrears payable by the defaulter. The court is of the firm view that the writ petition is allowed and that the impugned notice is unsustainable in law and is set aside. _

BCAJ Admin

From Published Accounts

Accounting Policy and disclosures for Leases of
land and other assets as per Ind AS (year ended 31st
March 2017)

ATUL LTD.

Consolidated financial statements

Significant Accounting Policies

As a lessee

Leases in which a significant portion of the risks and
rewards of ownership are not transferred to the Company
as lessee are classified as operating leases. Payments
made under operating leases (net of any incentives
received from the lessor) are charged to profit or loss
on a straight-line basis over the period of the lease
unless the payments are structured to increase in line
with expected general inflation to compensate expected
inflationary cost increases for the lessor.

As a lessor

Lease income from operating leases where the Company
is a lessor is recognised as income on a straightline
basis over the lease term, unless the receipts are
structured to increase in line with expected general
inflation to compensate for the expected inflationary
cost increases. The respective leased assets
are included in the Balance Sheet based on
their nature. Leases of property, plant and
equipment where the Company as a lessor
has substantially transferred all the risks
and rewards are classified as finance lease.
Finance leases are capitalised at the inception
of the lease at the fair value of the leased
property or, if lower, the present value of the
minimum lease payments. The corresponding
rent receivables, net of interest income,
are included in other financial assets. Each
lease receipt is allocated between the asset
and interest income. The interest income
is recognised in the Statement of Profit and
Loss over the lease period so as to produce
a constant periodic rate of interest on the remaining balance of the asset for each period.

Under combined lease agreements, land and building
are assessed individually. Lease rental attributable to the
operating lease are charged to Statement of Profit and
Loss as lease income, whereas lease income attributable
to finance lease is recognised as finance lease receivable
and recognised on the basis of effective interest rate.

Disclosures

Operating lease

The Company has taken various residential and office
premises under operating lease or leave and licence
Agreements. These are generally cancellable, having
a term between 11 months and 3 years and have no
specific obligation for renewal. Payments are recognised
in the Statement of Profit and Loss under ‘Rent’.

Finance lease

The Company has given a building on finance lease for a
term of 30 years.
Future minimum lease payments receivable under finance
leases together with the present value of the net minimum
lease payments (MLP) are as under:

Particulars	As at March 31, 2017		As at March 31, 2016		As at April 1, 2015
	Minimum lease payments	Present value of MLP	Minimum lease payments	Present value of MLP	Minimum lease payments	Present value of MLP
Not later than one year	0.20	0.20	–	–	0.20	0.20
Later than one year and not later than five years	0.40	0.34	0.40	0.35	0.40	0.33
Later than five years	2.00	0.84	2.20	0.94	2.20	0.88
Total minimum lease payments receivable	2.60	1.38	2.60	1.29	2.80	–
Less: Unearned finance Income	1.22	–	1.31	–	1.38	–

Particulars	As at March 31, 2017		As at March 31, 2016		As at April 1, 2015
	Minimum lease payments	Present value of MLP	Minimum lease payments	Present value of MLP	Minimum lease payments	Present value of MLP
Present value of minimum lease payments receivable	1.38	1.38	1.29	1.29	1.42	–
Less: Allowance for uncollectible lease payments	–	–	–	–	–	–
	1.38	1.38	1.29	1.29	1.42	–

The Company has taken on lease a parcel of land from
Gujarat Industrial Development Corporation for a period
of 99 years with an option to extend the lease by another
99 years on expiry of lease at a rental that is 100% higher
than the current rental. However, the Company has no
specific obligation for renewal. The Company believes
and has considered that such a lease of land transfers
substantially all of the risks and rewards incidental to
ownership of land, and has thus accounted for the same
as finance lease.

IDEA CELLULAR LTD.

Consolidated Financial Statements

Significant Accounting Policies

Leases

The Company evaluates whether an arrangement is
(or contains) a lease based on the substance of the
arrangement at the inception of the lease. An arrangement
which is dependent on the use of a specific asset or
assets and conveys a right to use the asset or assets,
even if it is not explicitly specified in an arrangement is (or
contains) a lease.

Leases are classified as finance lease whenever the
terms of the lease transfer substantially all the risks and
rewards of ownership to the lessee. All other leases are
classified as operating leases.

Company as a lessee Finance lease

Assets held under finance leases are initially recognised
as assets at the commencement of the lease at their fair
value or, if lower, at the present value of the minimum lease
payments. Lease payments are apportioned between
finance charges and reduction of the lease liability so as to achieve a constant rate of interest on
the remaining balance of the liability. Finance
charges are recognised in the Statement
of Profit and Loss, unless they are directly
attributable to qualifying assets, in which case
they are capitalised in accordance with the
Company’s general policy on borrowing costs.
Such assets are depreciated/amortised over
the period of lease or estimated useful life
of the assets whichever is less. Contingent
rentals are recognised as expenses in the
periods in which they are incurred.

Operating lease

Operating lease payments are recognised as an expense
in the statement of profit and loss on a straight-line basis
unless payments to the lessor are structured to increase
in line with expected general inflation to compensate for
the lessor’s expected inflationary cost increase; such
increases are recognised in the year in which such
benefits accrue. Contingent rentals arising, if any, under
operating leases are recognised as an expense in the
period in which they are incurred.

In the event that lease incentives are received to enter
into operating leases, such incentives are recognised
as a liability. The aggregate benefit of incentives is
recognised as a reduction of rental expense on a straightline
basis, except where another systematic basis is more
representative of the time pattern in which economic
benefits from the leased asset are consumed.

Company as a lessor Finance lease

Amounts due from lessees under finance leases are
recognised as receivables at the amount of the Company’s
net investment in the leases. Finance lease income is
allocated to accounting period so as to reflect a constant
periodic rate of return on the net investment outstanding
in respect of the lease.

Operating lease

Rental income from operating lease is recognised on a
straight-line basis over the lease term unless payments
to the Company are structured to increase in line
with expected general inflation to compensate for the
Company’s expected inflationary cost increase; such
increases are recognised in the year in which such
benefits accrue. Initial direct costs incurred in negotiating
and arranging an operating lease are added to the
carrying amount of the leased asset and recognised on
a straight-line basis over the lease term. Contingent rents are recognised as revenue in the period in which they are
earned.

Estimates and Judgments

Operating lease commitments – Company as lessee

The Company has entered into lease agreements for
properties and cell sites, where it has, on the basis of
evaluation of the terms and conditions of the arrangement
determined that the significant risks and rewards related
to the assets and properties are retained with the lessors.
Accordingly, such lease agreements are accounted for as
operating leases. Further details about operating lease
are given in Note 45.

Disclosures

Operating Lease

Company as lessee

The Company has entered into non-cancellable operating
leases for offices, switches and cell sites for periods
ranging from 36 months to 240 months.
Lease payments amounting to ₹52,522.45 million
(Previous year: ₹44,973.69 million) are included in rental
and passive infrastructure expenses in the statement of
profit and loss during the current year.

Future minimum lease rentals payable under noncancellable
operating leases are as follows:

Particulars	As at March 31, 2017	As at March 31, 2016	As at April 1, 2015
Within one year	48,254.95	42,264.91	36,965.54
After one year but not more than five years	140,612.85	122,015.51	120,216.08
More than five years	75,755.79	48,364.15	47,163.75

Company as lessor

The Company has leased certain Optical Fibre Cables
pairs (OFC) on Indefeasible Rights of Use (“IRU”) basis
and certain cell sites under operating lease arrangements.
The gross block, accumulated depreciation and
depreciation expense of the assets given on lease are
not separately identifiable and hence not disclosed.
Future minimum lease rentals receivable under
non-cancellable operating leases are as follows:

₹million
Particulars	As at March 31, 2017	As at March 31, 2016	As at April 1, 2015
Within one year	402.76	1,404.54	757.18
After one year but not more than five years	–	5,257.19	2,108.17
More than five years	–	5,140.92	2,136.62

The Company has composite IT outsourcing agreements
where in property, plant and equipment, computer
software and services related to IT has been supplied
by the vendor. Such property, plant and equipment
received have been accounted for as finance lease.
Correspondingly, such assets are recorded at fair value
at the time of receipt and depreciated on the stated useful
life applicable to similar IT assets of the company.

PVR LTD.

Consolidated financial statements

Significant accounting policies

The determination of whether an arrangement is
(or contains) a lease is based on the substance of
the arrangement at the inception of the lease. The
arrangement is, or contains, a lease if fulfilment of the
arrangement is dependent on the use of a specific asset
or assets and the arrangement conveys a right to use the
asset or assets, even if that right is not explicitly specified
in an arrangement.

Where the Company is the lessee Finance leases, which
effectively transfer to the Company substantially all the
risks and benefits incidental to ownership of the leased
item, are capitalised at the inception of the lease term at the
lower of the fair value of the leased property and present
value of minimum lease payments. Lease payments are
apportioned between the finance charges and reduction
of the lease liability so as to achieve a constant rate of
interest on the remaining balance of the liability. Finance
charges are recognised as finance costs in the Statement
of Profit and Loss. A leased asset is depreciated on a
straight-line basis over the useful life of the asset.

Leases where the lessor effectively retains substantially
all the risks and benefits of ownership of the leased
items are classified as operating leases. Operating lease
payments are recognised as an expense in the statement
of profit and loss on an ongoing basis.

Where the Company is the lessor

Leases in which the Company does not transfer
substantially all risks and benefits of ownership of the
assets are classified as operating lease.

Assets subject to operating leases are included in fixed
assets. Lease income is recognised in the Statement
of Profit and Loss on ongoing basis. Costs, including
depreciation are recognised as an expense in the
Statement of Profit and Loss. Initial direct costs such
as legal costs, brokerage costs, etc. are recognised
immediately in the Statement of Profit and Loss.

Disclosures

i. Rental expenses in respect of operating leases are
recognised as an expense in the Statement of Profit
and Loss and pre-operative expenditure (pending
allocation), as the case may be.

Operating Lease (for assets taken on lease)

Disclosure for assets taken under non-cancellable leases,
where the Company is presently carrying commercial
operations is as under, which reflects the outstanding
amount for non-cancellable period:

(₹ in crore)
Particulars	2016-17	2015-16
Lease payments for the year recognised in Statement of Profit and Loss (including deferred rent portion)	38,312	32,626
Lease payments for the year included in Capital work-in-progress	71	227
Minimum lease payments:
Within one year	23,106	19,162
After one year but not more than five years	67,950	54,163
More than five years	40,560	24,690

ii. Rental income/Sub-Lease income in respect of
operating leases are recognised as an income in the
Statement of Profit and Loss or netted off from rent
expense, as the case may be.

Operating Lease (for assets given on lease)

The Company has given various spaces under operating
lease agreements. These are generally cancellable on
mutual consent and the lessee can vacate the rented
property at any time. There is no escalation clause in the
lease agreement. There are no restrictions imposed by
lease arrangements.

(₹ in crore)
Particulars	2016-17	2015-16
Sub-lease rent receipts	1,015	1,061

The Company has given spaces of cinemas/food courts
under operating lease arrangements taken on lease or
being operated under revenue sharing arrangements.
The Company has common fixed assets for operating
multiplex/giving on rent. Hence, separate figures for the
fixed assets given on rent are not ascertainable.

iii. Finance lease: Company as lessee

The Company has finance leases contracts for plant and
machinery (Projectors). These leases involve significant
upfront lease payment, have terms of renewal and bargain
purchase option. However, there is no escalation clause.
Each renewal is at the option of lessee. Future minimum
lease payments (MLP) under finance leases together with
the present value of the net MLP are as follows:

₹ In lakhs
Particulars	March 31, 2017		March 31, 2016
	Minimum payments	Present value of MLP	Minimum payments	Present value of MLP
Within one year	899	524	813	433
After one year but not more than five years	3,259	2,537	3,145	2,282
More than five years	352	332	642	599
Total minimum lease payments	4,510	3,393	4,600	3,314
Less: amounts representing finance charges	(1,117)	–	(1,286)	–
Present value of minimum lease payments	3,393	3,393	3,314	3,314

There was no finance lease arrangement for the year
ended March 31, 2015.

THE INDIAN HOTELS COMPANY LTD.

Consolidated Financial statements

Significant accounting policies

Operating Lease

A Lease in which a significant portion of the risks and rewards of ownership are not transferred to the Company
is classified as operating lease. Payments made under
operating lease are charged to the Statement of Profit
and Loss on a straight line basis over the period of the
lease, unless the payments are structured to increase in
line with the expected general inflation to compensate for
the lessor’s expected inflationary cost increases.

For leases which include both land and building elements,
basis of classification of each element is assessed on the
date of transition, April 1, 2015, in accordance with Ind AS
101 First-time Adoption of Indian Accounting Standard.

Disclosures

In respect of a plot of land provided to the Company
under a licence agreement, on which the Company has
constructed a hotel, the licensor has made a claim of
₹ 344.50 crore to date, (13 times the previous annual
rental) for increase in the rentals with effect from 2006-
07. The Company believes these claims to be untenable.
The Company has contested the claim based upon
legal advice, by filing a suit in the Hon’ble High Court
of Judicature at Bombay on grounds of the licensor’s
inconsistent stand on automatic renewal of lease, levy
of lease rentals and method of computing such lease
rent, within the terms of the existing license agreement
as also a Supreme Court judgement on related matters.
Even taking recent enactments into consideration, in the
opinion of the Company, the computation cannot stretch
more than ₹ 86.36 crore (excluding interest/penalty), and
this too is being contested by the Company on merit.
Further, a “Notice of Motion” has been issued by the
Hon’ble High Court of Judicature at Bombay, inter alia,
for a stay against any further proceedings by the licensor,
pending a resolution of this dispute by the Hon’ble Bombay
High Court. In view of this, and based on legal advice,
the Company regards the likelihood of sustainability of
the lessor’s claim to be remote and the amount of any
potential liability, if at all, is indeterminate.

Note 32: Operating lease

The Company has taken certain vehicles, land and
immovable properties on operating lease. The leases of
hotel properties are generally long-term in nature with
varying terms and renewal rights expiring within five
years to one hundred & ninety eight years. On renewal,
the terms of the leases are renegotiated. The total lease
rent paid on the same is included under Rent and Licence
Fees forming part of Other Expenses (Refer Note No. 26,
Footnote (iv), Page 144).

The minimum future lease rentals payable in respect of
non-cancellable leases entered into by the Company to
the extent of minimum guarantee amount are as follows:—

Particulars	March 31, 2017	March 31, 2016	April 1, 2015
	₹ crore	₹ crore	₹ crore
Not later than one year	54.69	54.84	48.22
Later than one year but not later than five years	201.18	213.30	204.10
Later than five years	1,178.37	1,215.02	1,221.50
	1,434.24	1,483.16	1,473.82

In addition, in certain circumstances, the Company is
committed to making additional lease payments that
are contingent on the performance viz. gross operating
profits, revenues etc. of the hotels that are being leased.

Expenses Recognised in the statement of profit and loss:

Particulars	March 31, 2017	March 31, 2016
	₹ crore	₹ crore
Minimum Lease Payments/ Fixed Rentals	39.19	37.14
Contingent rents *	88.69	89.50
	127.88	126.64
* contingent on the performance viz. gross operating profits, revenues etc. of the hotels that are being leased.

WIPRO LTD.

Consolidated financial statements

Significant accounting policies

The determination of whether an arrangement is, or
contains, a lease is based on the substance of the
arrangement at the inception date. The arrangement
is, or contains a lease if, fulfilment of the arrangement
is dependent on the use of a specific asset or assets
or the arrangement conveys a right to use the asset or
assets, even if that right is not explicitly specified in an
arrangement.

Arrangements where the Company is the
lessee

Leases of property, plant and equipment, where the
Company assumes substantially all the risks and rewards
of ownership are classified as finance leases. Finance
leases are capitalised at lower of the fair value of the
leased property and the present value of the minimum lease payments. Lease payments are apportioned
between the finance charge and the outstanding liability.
The finance charge is allocated to periods during the
lease term at a constant periodic rate of interest on the
remaining balance of the liability.

Leases where the lessor retains substantially all the risks
and rewards of ownership are classified as operating
leases. Payments made under operating leases are
recognised in the Statement of Profit and Loss on a
straight-line basis over the lease term.

Arrangements where the Company is the lessor
In certain arrangements, the Company recognises
revenue from the sale of products given under finance
leases. The Company records gross finance receivables,
unearned income and the estimated residual value of
the leased equipment on consummation of such leases.
Unearned income represents the excess of the gross
finance lease receivable plus the estimated residual value
over the sales price of the equipment. The Company
recognises unearned income as finance income over the
lease term using the effective interest method.

Disclosures

Finance lease receivables

Finance lease receivables consist of assets that are
leased to customers for a contract term ranging from 1 to
7 years, with lease payments due in monthly or quarterly
installments. Details of finance lease receivables are
given below:

	March 31, 2017	March 31, 2016	April 1, 2015
Gross investment in lease
Not later than one year	₹2,060	₹2,222	₹3,685
Later than one year and not later than five years	2,725	3,127	3,108
Later than five years	–	–	73
Unguaranteed residual values	62	62	63
Unearned finance income	4,847 (319)	5,411 (413)	6,929 (569)
Net investment in finance receivable	₹4,528	₹4,998	₹6,360

Present value of minimum lease receivables are as
follows:

	*March 31,* *2017*	*March 31,* *2016*	*April 1,* *2015*
Present value of investment in lease
Payments receivables	₹ 4,528	₹ 4,998	₹ 6,360
Not later than one year	1,854	2,034	3,419
Later than one year and not later than five years	2,616	2,906	2,826
Later than five years	–	–	57
Unguaranteed residual values	58	58	58

Included in the consolidated balance sheet as follows:

March 31,

2017

March 31,

2016

April 1,

2015

Non-current

₹ 1,854

₹ 2,034

₹ 3,461

Current

₹ 2,674

₹ 2,964

₹ 2,899

Assets taken on lease

Finance leases:

The following is a schedule of present
value of minimum lease payments under finance leases,
together with the value of the future minimum lease
payments as of March 31, 2017, March 31, 2016 and April
1, 2015.

	*March 31,* *2017*	*March 31,* *2016*	*April 1,* *2015*
Present value of minimum lease payments
Not later than one year	₹ 3,623	₹ 3,133	₹ 1,660
Later than one year and not later than five years	4,657	5,830	3,218
Total present value of minimum lease payments	8,280	8,963	4,878
Add: Amount representing interest	437	578	345
Total value of minimum lease payments	₹ 8,717	₹ 9,541	₹ 5,223

Operating leases

The Company has taken office, vehicle and IT equipment
under cancellable and non-cancellable operating lease
agreements that are renewable on a periodic basis at the
option of both the lessor and the lessee. The operating
lease agreements extend up a maximum of fifteen years
from their respective dates of inception and some of these
lease agreements have price escalation clause. Rental
payments under such leases were ₹5,953, ₹5,184 and
₹4,727 during the years ended March 31, 2017, March
31, 2016 and April 1, 2015.

Details of contractual payments under non-cancellable
leases are given below:

	*March 31,* *2017*	*March 31,* *2016*	*April 1,* *2015*
Not later than one year	₹ 5,040	₹ 4,246	₹ 3,351
Later than one year and not later than five years	12,976	9,900	6,385
Later than five years	2,760	2,713	2,206
Total	₹ 20,776	₹ 16,859	₹11,942

Finance lease receivables

Leasing arrangements

Finance lease receivables consist of assets that are
leased to customers for contract terms ranging from 1 to
7 years, with lease payments due in monthly or quarterly
installments.

Finance leases

Obligation under finance lease is secured by underlying
assets leased. The legal title of these assets vests with
the lessors. These obligations are repayable in monthly,
quarterly and yearly installments up to year ending March
31, 2021. The interest rate for these obligations ranges
from 1.82% to 17.19%.

Operating leases

The Company leases office and residential facilities
under cancellable and non-cancellable operating lease
agreements that are renewable on a periodic basis at the
option of both the lessor and the lessee. Rental payments
under such leases are ₹2,878, ₹2,905 and ₹2,682 during
the years ended March 31, 2017, March 31, 2016 and
April 1, 2015.

BCAJ Admin

From Published Accounts

Section B:

Jindal Stainless Steel Ltd.

(31-3-2016)

– Composite scheme of Arrangement: Revision of
Financial Statements pursuant to section III and IV of the scheme becoming
effective (section I and II given effect earlier in same FY)

From Notes to Financial
Statements

27. Composite Scheme of Arrangement

1. A Composite
Scheme of Arrangement
(hereinafter referred to as “Scheme”) amongst Jindal Stainless Limited (the
Company/Transferor Company) and its three wholly owned subsidiaries namely
Jindal Stainless (Hisar) Limited (JSHL), Jindal United Steel Limited (JUSL) and
Jindal Coke Limited (JCL) under the provision of section 391-394 read with
section 100-103 of the Companies Act, 1956 and other relevant provision of
Companies Act, 1956 and/or Companies Act, 2013 has been sanctioned by the
Hon’ble High Court of Punjab & Haryana, Chandigarh vide its Order
dated 21^stSeptember, 2015, as amended vide order dated 12^thOctober, 2015.

Section
I and Section II of the Scheme became effective on 1^st November,
2015, operative from the appointed date i.e. close of business hours before
midnight of 31^stMarch, 2014.

Section
III of the scheme comprising Transfer of the Business undertaking 2 (as defined
in the scheme) of the Company comprising, inter-alia, of the Hot Strip
Plant of the Company located at Odisha and vesting of the same in Jindal United
Steel Limited (JUSL) on Going Concern basis by way of Slump Sale w.e.f.
appointed date i.e. close of business hours before midnight of 31^stMarch,
2015 and section IV of the Scheme comprising Transfer of the Business Undertaking
3 (as defined in the Scheme) of the Company comprising, inter-alia, of
the Coke Oven Plant of the Company Located at Odisha and vesting of the same
with Jindal Coke Limited (JCL) on Going Concern basis by way of Slump Sale
w.e.f. appointed date i.e close of business hours before midnight of 31^st
March, 2015. Section III and section IV of the Scheme has become effective on
24^th September, 2016 [i.e. on receipt of approvals from the Orissa
Industrial Infrastructure Development Corporation (OIIDCO) for the
transfer/grant of the right to use in the land on which Hot Strip (HSM Plant)
& Coke Oven Plants are located to JUSL & JCL respectively as specified
in the Scheme].

2. Pursuant
to the section I and section II of the Scheme becoming effective:

a) Against
amount of Rs. 36,618.67 lakh, the company is required to issue and allot
equity shares to JSHL at a price to be determined in accordance with chapter
VII of SEBI (ICDR) regulations 2009, with the record date jointly to be decided
by the board of directors of the Company and JSHL being considered as relevant
date as specified in the Scheme. The board of the Company and JSHL have, in
their respective meetings held on 6^th November, 2015, fixed 21^st
November, 2015 as the record date. However, since the price worked out for
issue of equity shares by the Company to JSHL, in terms of the provisions of
chapter VII SEBI (ICDR) was not reflective of the actual price of the equity
shares of the Company on EX-JSHL basis, therefore the allotment of equity shares
based on the aforesaid record date has not been pursued. Hence, pending
allotment by the Company of the aforesaid equity shares to JSHL as on 31^st
March, 2016, the same has been shown as “Share Capital Suspense Account”.
Subsequent to the Balance Sheet date, the company has allotted 16,82,84,309
nos. fully paid up equity shares of Rs. 2/- each @ 21.76 per share (including
premium of Rs.19.76 per share) on 3^rd July, 2016.

b) Out of Rs.
2,60,000.00 lakh payable by JSHL, Rs. 1,18,493.00 lakh
has been received upto 31^st March, 2016 and also balance amount of Rs.1,41,507.00
lakh has been received subsequent to balance sheet date.

c) In terms
of the Scheme, all the business and activities of Demerged Undertakings and
Business Undertaking 1 carried on by the Company on and after the appointed
date, as stated above, are deemed to have been carried on behalf of JSHL.
Accordingly, necessary effects had been given in the previous year accounts and
in these accounts on the Scheme becoming effective (read with note no.5 below).

3. Pursuant
to the section III and section IV of the Scheme becoming effective:

a) Business
undertaking 2 & Business undertaking 3 have been transferred to and vested
in JUSL & JCL respectively with effect from the Appointed Date i.e. close
of business hours before midnight of March 31, 2015 and the same has been given
effect to in these accounts.

b) (i) Business Undertaking 2 has been transferred at
a lump sum consideration of Rs. 2,41,267.33 lakh; out of this Rs.
2,15,000.00 lakh shall be paid by JUSL and against the balance amount of Rs.
26,267.33 lakh, the JUSL is to issue & allot to the Company
17,50,00,000 nos. 0.01% non-cumulative compulsorily convertible preference
shares having face value of Rs.10 each and 8,76,73,311 nos. 10%
non-cumulative non-convertible redeemable preference shares having face value
of Rs.10 each as specified in the Scheme, AND

(ii) Business undertaking 3 has been transferred at
a lump sum consideration of Rs. 49,264.71 lakh; out of this Rs. 37,500.00
lakh shall be paid by JCL and against the balance amount of Rs.
11,764.71 lakh, the JCL is to issue & allot to the Company 2,60,00,000
nos. 0.01% non-cumulative compulsorily convertible preference shares having
face value of Rs. 10 each and 9,16,47,073 nos. 10% non-cumulative non-convertible
redeemable preference shares having face value of Rs. 10 each as
specified in the Scheme. Pending allotment as stated above the same have been
shown as “Investment-pending Allotment”

c) On transfer of Business Undertaking 2 &
Business Undertaking 3, the differential between the book values of assets
& liabilities transferred and the lump sum consideration received as stated
above amounting to Rs. 36,259.75 lakh has been credited in the Statement
of Profit & Loss and included under Exceptional Item (Note no.30).

d) In terms of the Scheme, all the business and
activities of Business Undertaking 2 & Business Undertaking 3 carried on by
the company on and after the appointed date, as stated above, are deemed to have
been carried for and on behalf of JUSL & JCL respectively. Accordingly,
necessary effects have been given in these accounts on the Scheme becoming
effective.

4. The
necessary steps and formalities in respect of transfer of the properties,
licenses, approvals and investments in favour of JSHL, JUSL & JCL and
modification of charges etc. are under implementation.

5. While
according its approval for transfer/right to use of the land in the name of
JUSL & JCL Government of Odisha, Department of Steel & Mines vide
letter dated 16^th August, 2016, had put a condition that sections I
& II of the Scheme will not be carried out in so far as the mining lease of
the Company is concerned; accordingly transfer of the Mining Rights to Demerged
Undertakings (as referred in the Scheme) (Demerged undertaking transferred to
JSHL) is not been given effect, consequently:- (i) all mining activities in
relation to the Mining Rights continue to be carried out by the company (JSL);
and (ii) all assets (excluding fixed assets) and liabilities (including
contingent liabilities) in relation to the Mining Rights continue to be
recorded in the books of JSL; and (iii) all revenue and net profit: post 1^st
November 2015 on sections I & II of the scheme becoming effective are
recorded in the books of the company.

6. Post
Section III of the Scheme becoming effective, the Company has entered into an
agreement for Trolling of slabs got done from JUSL (Business Undertaking 2)
effective from 1^st April 2015, accordingly impact of the same amounting
to Rs. 35,262.50 lakh has been given under manufacturing expenses in
these accounts.

7. (A) Pursuant to the Scheme the effects on the
financial statements of operations carried out by the company for on behalf of
JUSL & JCL post the said appointed date have been given in these accounts
from the effective date (for the close of business hours before midnight of 31^st
March, 2015) are as summarised below:

Revenue items

Particulars (Post Appointed Period)

(Rs. in lakh)

2014-2015

Revenue

Nil

Expenses

Nil

Profit (Loss) before exceptional and
extraordinary items and tax

Nil

Exceptional Items – Gain/(Loss)

36,259.75

Profit before Tax

36,259.75

Tax Expenses (including deferred tax)

Nil

Profit after Tax

36,259.75

(B) As stated
in note no.1 above, the section III and section IV of the Scheme became
effective on 24^th September 2016, accordingly interest on amount
receivable will be accounted for.

8. The
financial statement of the Company for the year ended 31^st March,
2016 were earlier approved by the Board of Directors at their meeting held on
28^th May, 2016 on which the Statutory Auditors of the Company had
issued their report dated 28^th May, 2016. These financial statements
have been reopened and revised to give effect to the Scheme as stated in note
no.1 & 3 herein above.

From Auditors’ Report

Report
on the Standalone Financial Statements

We
have audited the accompanying REVISED standalone financial statements of JINDAL
STAINLESS LIMITED (“the Company”), which comprise the REVISED Balance Sheet as
at 31^stMarch, 2016, the REVISED Statement of Profit and Loss, the
REVISED Cash Flow Statement for the year then ended, and a summary of the
significant accounting policies and other explanatory information in which
impact of the Scheme (as stated in Note No.27) have been incorporated.

From Directors’ Report

Asset
Monetisation and Business Reorganisation Plan (AMP) and Composite Scheme of
Arrangement

The
Company, after having various rounds of discussions with the CDR Lenders, had
finalised a comprehensive plan of Asset Monetisation cum Business
Reorganisation Plan (“AMP”), which entailed monetisation of identified
business undertaking(s) of the Company through demerger/slump sale(s) and
utilisation of the proceeds of the slump sale(s) in reduction of debt of the
Company.

As
a part of the above said AMP, a Composite Scheme of Arrangement among the
Company and its three wholly owned subsidiary companies viz. Jindal Stainless
(Hisar) Limited (“JSHL”), Jindal United Steel Limited (“JUSL”)
and Jindal Coke Limited (“JCL”) and their respective creditors and
shareholders was undertaken which was approved by the Hon’ble High Court of
Punjab and Haryana at Chandigarh, vide its order dated 21^stSeptember,
2015 (as modified on 12^thOctober, 2015), Certified true copy of the
said Order was filed on 1^st November, 2015, with the office of
Registrar of Companies, NCT of Delhi and Haryana. Consequently, Section I
(pertaining to demerger of Mining Division and Ferro Alloys Division and
vesting the same in JSHL) and section II (pertaining to slump sale of
manufacturing facility at Hisar from the Company to JSHL) of the Scheme became
operative from the Appointed Date 1 i.e. close of business hours before
midnight of 31^st March, 2014. The Scheme envisaged demerger of
Mining Division including the Chromite Mines located at Sukinda and vesting the
same in JSHL, however, the Company did not receive approval from the Ministry
of Mines, Government of Odisha for transfer of the said Mines to JSHL,
therefore, the Board of Directors of the Company in its meeting held on 23^rd
November, 2016, in terms of clause 1.10 of section V of the Scheme, decided not to transfer the Mines of JSHL.

Section
III and IV of the Scheme with respect to JUSL and JCL respectively became
operative from Appointed Date 2 i.e. close of business hours before midnight of
31^st March, 2015, upon receipt of approval from Orissa Industrial
and Infrastructure Development Corporation Limited (OIIDCO), on 24^th
September, 2016, with respect to the transfer/right to use the land on which
Hot Strip Mill and Coke Oven Plant is located, from the Company to JUSL and JCL
respectively.

Post implementation of the
Scheme, the Company has already received an amount of Rs. 2,600 crore as
consideration for slump sale from JSHL, which has been utilised to prepay the
debts of the Company and accordingly the debt of the Company as on date has
been reduced to that extent. The Company will further receive an amount of Rs.
2,400 crore from JUSL and `Rs. 500 crore from JCL towards consideration of
slump sale and interest free security deposit for sharing infrastructure
facilities in due course and that amount shall also be utilised to prepay the
debts of the Company.

BCAJ Admin

RBI /FEMA

Given below are the highlights
of certain RBI Circulars & Notifications

117. A. P. (DIR
Series) Circular No. 23 dated 27^th December, 2016

Purchase and sale of securities
other than shares or convertible debentures of an Indian company by a person
resident outside India

This circular permits Foreign
Portfolio Investors to undertake transactions of non-convertible debentures /
bonds issued by Indian companies either directly or in any manner as per the
prevalent / approved market practice.

118. A. P. (DIR
Series) Circular No. 24 dated 3^rd January, 2017

Exchange facility to foreign
citizens

This circular provides that the
facility for exchange of foreign exchange for Indian currency, available to
foreign citizens (i.e. foreign passport holders) whereby they were permitted to
exchange foreign exchange for Indian currency notes up to a limit of Rs.
5,000/- per week will continue up to 31^stJanuary, 2017. The foreign
tourist will have to give, at the time of exchange, a self-declaration that he
/ she has not availed of this facility during the week and also provide a copy
of their passport.

119. Notification No.
FEMA. 377/2016-RB dated 10^th January, 2017

Foreign Exchange Management
(Transfer or Issue of Security by a Person Resident outside India) (Fifteenth
Amendment) Regulations, 2016

This
notification has made the following two changes Notification No. FEMA.
20/2000-RB dated 3^rdMay 2000): –

1. A new definition ‘convertible
note’ has been inserted vide clause (iiA), as under, in Regulation 2: –

“(iiA) ‘convertible note’ means an
instrument issued by a startup company evidencing receipt of money initially as
debt, which is repayable at the option of the holder, or which is convertible
into such number of equity shares of such startup company, within a period not
exceeding five years from the date of issue of the convertible note, upon
occurrence of specified events as per the other terms and conditions agreed to
and indicated in the instrument;”

2. A new Regulation 6D which deals
with Issue of Convertible Notes by startup companies has been added.

120. Notification No.
FEMA. 383/2016-RB dated 10^th January, 2017

Foreign Exchange Management
(Transfer or Issue of Security by a Person Resident outside India) (Amendment)
Regulations, 2017

This notification has made the
following changes in Schedule 1, in Annex B of Notification No. FEMA.
20/2000-RB dated 3^rd May 2000): –

A. The existing Paragraph F.4 shall
be substituted by the following namely: –

F.4

Infrastructure Company in the Securities Market

F.4.1

Infrastructure companies in Securities Markets,
namely, stock exchanges, commodity derivative exchanges, depositories and
clearing corporations, in compliance with SEBI Regulations.

49%

Automatic

F.4.2

Other Conditions:

(i) Foreign
investment, including investment by FPIs, will be subject to the Guidelines/
Regulations issued by the Central Government, SEBI and the Reserve Bank from
time to time.

(ii) Words
and expressions used herein and not defined in these regulations but defined
in the Companies Act, 2013 (18 of 2013) or the Securities Contracts
(Regulation) Act, 1956 (42 of 1956) or the Securities and Exchange Board of
India Act, 1992 (15 of 1992) or the Depositories Act, 1996 (22 of 1996) or in
the concerned Regulations issued by SEBI shall have the same meanings
respectively assigned to them in those Acts / Regulations.

B. The existing Paragraph F.6 shall be deleted.

C. The existing Paragraphs F.7, F.8, F.9 and F.10
shall be re-numbered as F.6, F.7, F.8 and F.9
respectively.

121. A. P. (DIR
Series) Circular No. 27 dated 12^thJanuary, 2017

Evidence of Import under Import Data Processing and
Monitoring System (IDPMS)

This circular: –

1. States that the procedure for submission of
hardcopy of Evidence of Import documents i.e. Bill of Entry, has been
discontinued with effect from 1^st December, 2016, as the same is
available in IDPMS.

2. Lays
down the revised procedure to be followed by Banks with respect to evidence of
import under IDPMS.

122. A. P. (DIR
Series) Circular No. 28 dated 25^th
January, 2017

Notification No. FEMA 382/2016-RB dated 2^nd
January, 2017

Prohibition on Indian Party
from making direct investment in countries identified by the Financial Action
Task Force (FATF) as “Non Co-operative countries and territories”

Presently, an Indian Party, in terms of FEMA Notification No.
FEMA.120/RB-2004 dated 7^th July, 2004, can undertake investment in
any country.

This circular prohibits an Indian Party from undertaking ODI,
in terms of FEMA Notification No. FEMA.120/RB-2004, in an entity, either
directly by setting up or acquiring a JV/ WOS or indirectly by way of a step
down subsidiary, which is located in countries identified as “non co-operative
countries and territories” by the FATF.

The list is available on the FATF website –
www.fatf-gafi.org.

123. A. P. (DIR
Series) Circular No. 29 dated 2^nd February, 2017

Foreign Exchange Management Act, 1999 (FEMA) Foreign
Exchange (Compounding Proceedings) Rules, 2000 (the Rules) – Compounding of
Contraventions under FEMA, 1999

This circular states that the powers to compound the
contraventions pertaining to delay in filing the Annual Return on Foreign
Liabilities and Assets (FLA return), by all Indian companies which have received
Foreign Direct Investment in the previous year(s) including the current year,
have been delegated to the Regional Offices of RBI.

All Regional Offices except the Regional Offices at Kochi and
Panaji can compound the contraventions without any limit as to the amount of
contravention.

The Regional Offices at Kochi and Panaji can compound the
contraventions up to Rs. 10,000,000. Contraventions in excess of Rs. 10,000,000
will be compounded by the Central Office at Mumbai.

124. A. P. (DIR
Series) Circular No. 30 dated 2^ndFebruary, 2017

Notification No. FEMA 378/2016-RB dated 25^th
October, 2016

Risk Management and
Inter-bank Dealings: Permitting Non Resident Indians (NRIs) access to Exchange
Traded Currency Derivatives (ETCD) market

This circular now permits NRI, subject to certain terms and
conditions, to hedge their currency risk arising out of their investments in
India by using the products available on the exchange traded currency
derivatives market in India. This facility is in addition to the existing
hedging facilities that are available to NRI.

125. A. P. (DIR
Series) Circular No. 31 dated 17^thFebruary, 2017

Issuance of Rupee denominated bonds overseas – Multilateral
and Regional Financial Institutions as Investors

Presently, Rupee denominated bonds can be issued only in a
country and to a person resident in a country: –

1. That is a member of Financial Action Task
Force (FATF) or a member of a FATF Style Regional Body; and

2. Whose securities market regulator is a
signatory to the International Organization of Securities Commission’s
(IOSCO’s) Multilateral Memorandum of Understanding (Appendix A Signatories) or
a signatory to bilateral Memorandum of Understanding with the Securities and
Exchange Board of India (SEBI) for information sharing arrangements; and

3. That should not be a country identified in the
public statement of the FATF as: –

(i) A jurisdiction having a strategic Anti-Money
Laundering or Combating the Financing of Terrorism deficiencies to which
counter measures apply; or

(ii) A jurisdiction that has not made sufficient
progress in addressing the deficiencies or has not committed to an action plan
developed with the Financial Action Task Force to address the deficiencies.

This circular now, in addition to the above, now
permits Indian entities to issues Rupee denominated bonds to Multilateral and
Regional Financial Institutions in which India is a member country.

BCAJ Admin

Allied Laws

24. Family & Personal Laws –
Family arrangement /settlement in respect of immovable property worth more than
Rs. 100, when orally made, no registration is required and is admissible in
evidence but when reduced in writing same has to be registered- but even if
unregisterd, same can be used as corroborative evidence. [Sections 17 & 49
of the Registration Act, 1908.]

Subraya M.N. vs. Vittala M.N. And Others (2016) 8 scc 705 (sc).

The Appellant-Defendant and the Respondents- Plaintiffs are
the sons of one late Narayana. The suit scheduled property comprises of item
No. 1 measuring 1.00 acre; item No. 2 measuring 0.25 acre. Appellant-Defendant
claimed that so far as item Nos. 1 and 2 are concerned, Plaintiffs have sold
their shares – 0.50 acre of land to the Defendant and the third Plaintiff as
per sale deed dated 28.04.1976 and Plaintiffs have no right to claim partition
in respect of item Nos. 1 and 2. It is further averred that there was a
panchayat in the village on 18.03.1995 wherein Plaintiff Nos. 3 and 4 and Defendant
participated and it was agreed between the parties that the Defendant will give
Rs. 50,000/- to the Plaintiff Nos. 3 and 4 and Defendant will have all rights
over item Nos. 1 and 2. The trial court as well as the High Court held that in
the absence of any conveyance deed, it cannot be established that Plaintiff
Nos. 3 and 4 have forfeited their rights in respect of item Nos. 1 and 2 of the
suit scheduled property. The Supreme court reversing the order of trial court
and high court held that in the facts and circumstances of this case and the
conduct of the parties, Panchayat resolution appears to record the family
settlement already arrived at between the parties. There is no provision of law
requiring family settlements to be reduced to writing and registered, though
when reduced to writing the question of registration may arise. Binding family
arrangements dealing with immovable property worth more than rupees hundred can
be made orally and when so made, no question of registration arises. If,
however, it is reduced to the form of writing with the purpose that the terms
should be evidenced by it, it required registration and without registration it
is inadmissible; but the said family arrangement can be used as corroborative
piece of evidence for showing or explaining the conduct of the parties. In the
present case, panchayat resolution reduced into writing, though not registered
can be used as a piece of evidence explaining the settlement arrived at and the
conduct of the parties in receiving the money from the Defendant in lieu of
relinquishing their interest in item Nos. 1 and 2.

25. Nomination under Companies Act,
1956 will not override succession [Sections 109A and 109B of Companies Act,
1956].

Shakti Yezdani & Ors vs. Jayanand Jayant Salgaonkar and
Ors. Appeal No. 313 Of 2015 & Appeal No. 311 of 2015 dtd 1.12.2016
(Bom,)(HC)

The questions to be decided by the division bench of the
Bombay High Court were as under:

(i) Whether a nominee of a holder of shares or
securities appointed u/s. 109A of the Companies Act, 1956 read with the
Bye-laws under the Depositories Act, 1996 is entitled to the beneficial
ownership of such shares or securities to the exclusion of all other persons
who are entitled to inherit the estate of the holder as per the law of succession?

(ii) Whether a nominee of a holder of shares or
securities on the basis of the nomination made under the provisions of the
Companies Act, 1956 read with the Bye-laws under the Depositories Act, 1996 is
entitled to all rights in respect of such shares or securities to the exclusion
of all other persons or whether he continues to hold the securities in trust
and in a capacity as a beneficiary for the legal representatives who are
entitled to inherit securities or shares under the law of inheritance ?

(iii) Whether a bequest made in a Will executed in
accordance with the Indian Succession Act, 1925 in respect of shares or
securities of the deceased supersedes the nomination made under the provisions
of Sections 109A and Bye-Law No. 9.11 framed under the Depositories Act,
1996?.”

The Bombay High court held as under:

(i) The Apex Court in the case of Indrani
Wahi vs. Registrar of Co-op. Societies and Others (2016) 6 SCC 440
considered the provisions of nomination under Sections 69 and 70 of the West
Bengal Co-operative Societies Act, 1983 and came to the conclusion that where a
member of a Co-operative Society nominates a person in consonance with the
provisions of the Rules framed under the West Bengal Act of 1983, the
Co-operative Society is mandated to transfer all the shares or interest of such
member in the name of the nominee. This view was taken by the Apex Court in the
light of the express provisions of section 80 of the said Act of 1983 read with
Rule 127 of the Rules of 1987 framed under the West Bengal Act of 1983.
Sections 79 and 80 of the said Act of 1983 appear to be different from the
provisions relating to the nomination in the Maharashtra Cooperative Societies
Act, 1960. After issuing the directions to the Co-operative Society to transfer
the shares of the deceased member in the name of the Appellant who was a
nominee, the Apex Court specifically observed that it will be open for other
members of the family of the deceased member to pursue their case of succession
or inheritance in consonance with law. Thus, the conclusion drawn by the Apex
Court was that a Cooperative Society is bound by the nomination made by the
member. In case of such nomination, the Society has no option except to
transfer the shares in the name of the nominee after the death of the member.

However, those who are claiming
inheritance will be entitled to pursue their remedies and claim title in the
shares on the basis of inheritance. Thus, the conclusion drawn by the Apex
Court was not that the nomination binds the legal representatives of the
deceased shareholder or a member of the Society or that it overrides the law of
succession.

(ii) Even assuming that the format of the
nomination requires attestation as required by a will under the Indian
Succession Act, 1925, the nomination does not become a testamentary
disposition.

(iii) The provisions relating to nominations under
the various enactments have been consistently interpreted by the Apex Court by
holding that the nominee does not get absolute title to the property subject
matter of the nomination.

The reason is by its very nature, when a
shareholder or a deposit holder or an insurance policy holder or a member of a
Co-operative Society makes a nomination during his life time, he does not
transfer his interest in favour of the nominee. It is always held that the
nomination does not override the law in relation to testamentary or intestate
succession. The provisions regarding nomination are made with a view to ensure
that the estate or the rights of the deceased subject matter of the nomination
are protected till thelegal representatives of the deceased take appropriate
steps.

None of the provisions of the aforesaid Statutes providing
for nominations deal with the succession, testamentary or non-testamentary.

(iv) The object of the provisions of the Companies
Act is not to either provide a mode of succession or to deal with succession.
The object of the Section 109A is to ensure that the deceased shareholder is
represented by someone as the value of the shares is subject to market forces.

Various advantages keep on accruing to
shareholders. For example, allotment of bonus shares. There are general
meetings held of the companies in which a shareholder is required to be
represented. The provision is enacted to ensure that the commerce does not
suffer due to delay on the part of the legal heirs in establishing their rights
of succession and claiming the shares of a company.

(v) The so called vesting u/s. 109A does not
create a third mode of succession. It is not intended to create a third mode of
succession. The Companies Act has nothing to do with the law of succession.

(vi) The
first question is answered in the negative and the third question in the
affirmative. The second question is answered accordingly.

Editor’s Note – A reference may be made to the Feature Laws
and Business published in the May 2015 issue of the BCAJ in which this subject
is analysed.

26. Sales Tax – Minor admitted to
benefits of partnership not liable for dues of the firm. [Sections 25, 30 of Indian Partnership Act, Section 21
of Kerala General Sales Tax Act, 1963]

J. Rajmohan Pillai vs. District Collector, Kollam &
Ors (2016) 93 vst 397(ker)

The petitioner, while he was a minor was inducted as a
partner of the firm M/s. Malabar Cashew and Allied Products with effect from
01/01/1975. The partnership was reconstituted on 01/01/1976 by which the
petitioner and three other minors were excluded from the partnership. The firm
was liable to pay sales tax dues and accordingly, revenue recovery proceedings
were initiated by the 1^st respondent. The 1^st respondent
proceeded on the basis that the petitioner, being a partner, was also liable
for the arrears of sales tax dues and accordingly, steps were taken against the
petitioner u/s. 65 of the Revenue Recovery Act.

The Kerala High Court held that when a firm is liable, each
of the partners in the firm are jointly and severally liable for the amount due
until he retires. It is very clear from the provisions of the Act, that a minor
can only be admitted to the benefits of the partnership and cannot become
liable to the debts or the loss of the partnership. It is trite, that a minor
cannot be made liable for the liability of the firm. The District Collector had
referred to sections 30(7), 35 and 25 of the Partnership Act to impose a
liability on the petitioner. Section 30 of the Partnership Act, relates to
admitting a minor to the benefits of partnership. The Statute indicates that
though a minor may not be a partner of the firm, he may be admitted to the
benefits of the partnership. Though the minor’s share is liable for the acts of
the firm, but the minor is not personally liable for any such act.

27. Investigation and Enquiry –
Summons under Customs Act – Presence of counsel during interrogation of
Petitioner – To be within visible range but beyond hearing range – Counsel must
be prepared to be present for every summons made. [Customs Act, 1971; Section
108]

Vijay Sajnani vs. Union
Of India 2017 (345) E.L.T. 323 (S.C.)

Section 108 of the Custom’s Act gives the power
to summon any person to give any evidence or produce documents. The section
also states, that the person so summoned, is bound to state the truth upon any
subject, on inquiry. The section had no mention of whether the counsel of the
person so summoned would be able to witness such inquiry/interrogation.
However, in the present case, the Supreme Court had allowed the Counsel of the
petitioners to be present during the interrogation of the petitioners. But this
allowance was subject to the counsel being present at a reasonable and visible
distance, beyond hearing range, during such interrogation It was also directed
that the petitioner’s counsel should always be prepared to be present whenever
the petitioners are called upon to attend such interrogation.

BCAJ Admin

Light Elements

Mr. Optimist and Mr. Skeptic were good friends. Optimist was very happy
with the policies of the new Government. He felt that now the things would be
better. The new Government has promised clean governance, minimum intervention
of administration, healthy external policies, ease of doing business,
transparency, financial inclusion, and what not! He started day dreaming for a
happy and peaceful life for the common man.

One day after the Union Budget, Mr.
Optimist met Mr. Skeptic.

Optimist : Hello. What do you feel about the budget?

Skeptic : Well. It is same as every year’s. Nothing
new!

Optimist : Are you not happy with the policies announced
by the FM?

Skeptic : Practically all FMs so far have been
promising the same thing.

Optimist : But the implementation was bad. Bureaucrats
were not allowing good things to happen.
There was corruption.

Skeptic : Do you think bureaucracy has changed? Do you
think corruption will stop?

Optimist : Well; we should always hope for the better.
They are taking good steps in that direction. Everything is becoming ‘on-line’.

Skeptic : So, what you feel will happen now?

Optimist : I am sure, there will be stability and
growth!

Skeptic : Ha! Ha! Ha! I will tell you a story.

There was a very poor country. It was faced with the menace from rats.
All fields and other places were infested with rats. They were causing lot of
damage to the crop, to the properties and everything. The Government was
helpless. People didn’t know how to tackle this problem.

Once, they convened a conference in which international experts were
invited to solve this monstrous problem. They made their presentations which
were very impressive.

A few experts suggested electronic
devices; but the host country said – “we are too poor to afford such expensive
gadgets”. A few others came out with chemical solutions. Again there was
helplessness due to cost factor.

Chemicals would also spoil the fertility of the soil. It seemed the conference
would be futile. Nothing was working out.

Finally, one Indian expert stood up. He said –‘I can suggest a simple
remedy’. All listened to him very intently.

“Look here”, he said; “Take a knife and keep it horizontal on the floor;
or on the table. Take two small plates and keep one on each end of the knife.
Put some gud (Jaggery) in one plate and some kopra (coconut) in
the other.

“How will it
help?” – People wondered.

“Rat will come;
stand before the knife and have a dilemma. What to eat first? ‘Gud’ or ‘kopra’.
He will move his neck violently. In the process, his neck will get cut! And
your jaggery and coconut will remain intact”!

People applauded
very loudly. They were all extremely happy. Same night, there was a cabinet
meeting of the ministers. The mood was very joyous. Suddenly, somebody pointed
out – The remedy is alright. But how can we afford so much gud and kopra?
We are so poor! There was a long and deep silence. Finally, they rang up the
expert again and explained to him the problem.

“Don’t worry”,
assured the expert. I will think of a solution. Let’s meet tomorrow morning.

Next day, there
was again an assembly of selected persons. The expert said, “ I have found the
solution. Keep the same arrangement, horizontal knife and two dishes; but let
them be empty’.

People got
puzzled. “How will it help?”

Expert – “See,
the rat will come, look at both the dishes; and will wonder “Arey! Gud bhi
nahi aur kopra bhi nahi! (Neither jaggery nor coconut). He will again shake
his neck in despair! Result, you know. Cutting of his neck!”

Optimist
realised the fate of ‘stability’ and ‘growth’! And also that the citizens of
our country are like rats._

BCAJ Admin

Indirect Taxes

83. Refund of Swachh Bharat Cess to Exporters and SEZ units :

Notification No. 03/2016 dated 03.02.2016

CBEC vide this Notification allows refund/rebate of Swachh Bharat Cess to exporters and SEZ units. By this notification CBEC seeks to amend Notification No. 39/2012- ST, dated 20th June, 2012 so as to provide for rebate of Swachh Bharat Cess paid on all services, used in providing services exported in terms of rule 6A of the Service Tax Rules.

84. Refund of Service Tax paid on Services used beyond factory for export of goods :

Notification No. 01/2016 dated 03.02.2016
The Board has issued this Notification, amending the Notification No. 41/2012-ST substituting “place of removal” with “factory or any other place or premises of production or manufacture of the said goods” effective from 3rd February, 2016. The impact of such amendment would be allowing refund of service tax paid on expenses incurred post factory gate which hitherto was considered ineligible for refund.

Further Notification No. 41/2012-ST also grants option for claiming refund based on fixed percentage of FOB value of export. The rate of refund as specified in the said notification was fixed when the rate of service tax was 12.36%, the said schedules of rates is now being amended by this Notification No. 01/2016 to give effect of current service tax rate of 14.5 %.

85. Refund of Swachh Bharat Cess paid on Specified Services used in SEZ units :

Notification No. 02/2016 dated 03.02.2016

CBEC vide this Notification seeks to amend Notification No. 12/2013- ST, dated the 1st July, 2013 so as to allow SEZ units, the refund of Swachh Bharat Cess paid on specified services on which ab-initio exemption is admissible but not claimed.

BCAJ Admin

from the president

Dear Members,

Greetings!

We had a wonderful 6th Residential Study Course (RSC) on IFRS and Ind ASs. Three papers for discussion and two papers for presentation took the participants through a number of facets of Ind ASs implementation. One key takeaway for me was an analysis where the speaker proved the impact of Ind ASs will be minimum and manageable. He demonstrated that in terms of number of adjustments and impact on Revenue Statement and Balance Sheet will not be substantial for most businesses. The excessive hype generally around implementation issues, impact and requisite changes should therefore largely prove to be just that.

It was also heartening to find people from non audit disciplines at the Ind ASs RSC. In recent times, we have seen a tilt towards specialisation and hyper specialisation. However the business universe is far more interconnected and dynamic than ever before. Often specialisation works in compliance arena, but when it comes to giving advice, the approach calls for sound knowledge of a number of facets of the issue. Perhaps there will be some balancing in the profession, and CAs will function as advisors who give comprehensive solutions and direction. Such turnaround, stepping out of compliance practice, would bring a larger part of the profession in a superior trajectory. A speaker did point out that out of what a CFO typically requires; only 9 % relates to tax and accounting which we CAs deal with. I hope as CAs we will step up to deliver the other 91% that market requires.

Make in India – Manufacturing and Job Creation
Global demand remains sluggish and seems to stay that way. Manufacturing in India does have serious disadvantages, from poor infrastructure to terrible regulatory mechanism. The simplest of things could be painful and the obvious could be crammed with unimaginable hurdles. Our advantage is the market. But whether serious value addition can happen in India or not is still a question. Unfortunately, we need urgently a whole ecosystem where an Industry can come, along with all its paraphernalia of suppliers and others and set up a base. The Make in India week seemed to have brought this in focus and now the Rs. 15 lac crores of investment commitment need to translate into actual investments.

What we need today is jobs, more jobs and better jobs. Statistically the correlation between Manufacturing and job creation has weakened. Between 2004-05 and 2009- 10, the employment in manufacturing fell by around 5 million. Presently the chances of high job creation look steep. Automation and artificial intelligence (AI) pose strong challenge to the man who created them. Industrial robots sold increased by 56% in the last year, driven by emerging markets. I heard that AI is being developed to an extent that even call centres will be driven by AI where you will be able to get responses by machines which are faster and in the right tone. Our government has been talking about all the right things, and bringing initiatives such as Digital India, Start up India, Skill India and so on. However, the level of urgency cannot be over emphasized and therefore the scale and pace will need a greater push.

New Leadership at ICAI
Our parent body, ICAI has a new leadership in place with the President Mr. Devaraja Reddy and Vice President Mr. Nilesh S. Vikamsey at the helm. It so happens that both are BCAS members and Mr Vikamsey has been an integral part of the accounting and auditing committee for many years. The Society conveys its best wishes and continued commitment to partner with ICAI in its endeavour of Nation building.

Parliament Functioning
Today, the parliament’s fascination to remain focussed on one or two issues at the detriment of larger problems faced by the nation is becoming rampant and serious. Where farmers commit suicide, where people cannot find meaningful and gainful employment, where investment proposals in industrial sector in value terms are at an 11 years low, where rupee is weakening, companies are over leveraged, banks are ridden with NPAs, should the parliament not focus on matters that have enduring positive effect on the lives of our people? Could we have more deliberations than accusations, can we expect normal functioning rather than pandemonium, will adjournments be replaced by extended hours of working to clear pending business?

Tax Policy
The FM announced the creation of Tax Policy Council (TPC) and Tax Policy Research Unit (TPRU) to make coherent tax policies and ensure independent, multidisciplinary analysis before decisions are made. This is a welcome move arising from the TAR C report. TPRU will carry out impact analysis of new tax measures on immediate state revenues and also the medium and long term impact on behaviour of economic agents and the economy as a whole. We can now hope that this unit will bring out the baneful consequences of issues such as retroactive amendments, and point out side effects of sudden changes, reversals, negation of lawful judgements, that discourage investments. The actions of bureaucracy to collect more taxes, has resulted in creating a perception of Indian tax system as predatory and unfair. Having a bad tax policy and administration is akin to killing the geese that lays golden eggs. We hope that TPRU will be fair, independent and vociferous and brings out projections that will inform formulation of tax laws.

Finance Bill
The Society started a new initiative to have short videos of about 2 minutes by some of our members practicing in tax laws and young professionals speaking about their Budget expectations under specific areas. We received good feedback and therefore we will post more videos after the 29th February on our You Tube channel, Social Media and also circulated via email.

As you read this page, the FM would have presented a Union Budget that we all were looking forward to. No one knows better than the FM that behind good looking macro indicators, lies over capacity, high debt, rancid bank loans, and slackening demand and much more. In the spirit of Holi, let us hope that the FM will sprinkle the colours of structural reform, controlled spending, and big bang tax reforms, if not more. Time is running out and destinies of a billion plus people are involved!

BCAJ Admin

LETTERS FROM THE READERS

Dear Mr President,

I read with lot of interest
“Pelting Pessimism”, so well written editorial, hats off to him….I
had posted this on my facebook wall, despite there are not many who really
read, I received the following appreciating words….Please pass it to him….

“Yatendra Goyal Excellent. I have gone
through the whole text. The views expressed are a result of deep study of
present day scenario. Congrats for the nice thought provoking views.”

Yatendra Goyal.

Dear Raman,

Your editorial titled “
Pelting Pessimism” in the BCAS Journal of February 2019 is simply superb!

It is definitely an
eye-opener for the negative thinkers. Not only the choice of subject is very
good, the article is also excellently articulated. Congratulations!

Such thoughts should be
widely shared to beat the pessimism. In case you are not doing so yet, suggest
you send such editorials to a couple of conscious newspapers.

These are my personal
thoughts.

Swati Kapadia

BCAJ Admin

SOCIETY NEWS

Full day Seminar on “Capital Gains and Income from Other Sources” held on 18th January 2019 at BCAS Conference Hall

The Taxation Committee organised a full day Seminar on Capital gains and Income from other Sources on 18th January, 2019 at BCAS Conference Hall, with distinguished speakers sharing their in-depth knowledge on the subject. The event garnered overwhelming response and saw an attendance of 104 participants which also included outstation participants from 6 cities. President CA. Sunil Gabhawalla gave the opening remarks.

Following topics were taken up at the Seminar by the Speakers:

Certain Fundamental Concepts Governing Capital Gain on Immovable Property	Adv. Vipul Joshi
Overview of provisions of capital gains from transfer of shares and securities – issues in long term capital gains on listed shares – applicability of grand fathering clause – derivatives – business income v/s capital gains	CA. Gautam Nayak
Income from Other sources – transfer of shares between relatives and non-relatives including minor – issues in section 56(2) – sale of shares of distressed companies – intergroup transfer and restructuring – recent judicial decisions.	CA. (Dr.) Anup Shah
Brain Trust Questions – Capital Gains Issues Short term – long term – sections 45 & 48 – sections 54, 54EC and 54F – section 47: transfers not liable to tax – clubbing of income – exempt income – winnings from lotteries, prizes etc.	CA. Rajan Vora, CA. Anil Sathe & CA. Radhakishan Rawal

Adv. Vipul Joshi started the first session highlighting the fundamental concepts on taxation of Income from Capital gains. He concentrated on various issues arising from Capital Gains on Immovable Property and cited relevant case laws on various issues.

CA. Gautam Nayak explained to the participants about Taxability on Transfer of Shares & Securities. He discussed and explained the basis on which the income should be categorised as Capital Gains or Business income. He gave his insights on taxation of transactions in derivatives. Participants also had the benefit of knowing Mr Nayaks’ views on Capital Gains on listed Equity Shares and EOMFs as amended vide the Finance Act 2018.

CA. (Dr.) Anup Shah spoke on issues under section 56(2) and business restructuring. He covered almost all the issues and gave the recent jurisprudence on the said issues. He also gave his insights on newly inserted section 56(2)(x) and the controversy surrounding Angel Tax. He explained business restructuring in detail including merger, demerger, takeover, slump sale etc.

CA. Rajan Vora, CA. Anil Sathe and CA. Radhakishan Rawal were the trustees for the last session of Brains Trust. All of them were given six questions each to address. CA. Rajan Vora gave his views and answers to questions relating to sections 45(3), 50C, 56 (2) (x), 68, 54, 54F etc. CA Anil Sathe answered questions largely concerning Capital Gains and Income from other sources from transfer of Immovable Property. He also addressed participants on issues concerning joint development agreements between landowners and the developer. CA. Radhakishan Rawal gave his insights on questions relating to taxability from transfer of securities and ESOPs with examples.
The sessions were interactive and the speakers shared their insights on the subject. The participants benefited immensely from the guidance and practical views on various issues by the faculties.

Suburban Study Circle Meeting on “FEMA – Liberalised Remittance Scheme (‘LRS’) and Overseas Direct Investment (‘ODI’)” held on 24th January, 2019

The Suburban Study Circle organised a meeting on “FEMA – Liberalised Remittance Scheme (‘LRS’) and Overseas Direct Investment (‘ODI’)” on 24th January, 2019 at Bathiya & Associates, LLP, Andheri East, which was addressed by CA. Rutvik Sanghvi.

The speaker made a detailed presentation on (i) FEMA vs. FERA (ii) Liberalised Remittance Scheme (iii) Overseas Direct Investment (iv) Investment in Real Estate outside India and (v) FEMA Compliance related to LRS and ODI. He further presented the brief about the FEMA law and how FEMA replaced FERA and also lucidly explained the rules and regulations related to LRS and ODI provisions citing practical examples that helped the participants in understanding the FEMA regulations. The participants benefited from the presentation shared by the speaker.

DIRECT TAX LAWS STUDY CIRCLE

Study Circle Meeting on “Issues under section 56(2) (x) of the Income-tax Act, 1961” held on 31st January 2019 at BCAS Conference Hall

Direct Tax Laws Study Circle organised the captioned meeting on 31st January, 2019 at BCAS Conference Hall. The Chairman of the session, CA. Anil Sathe gave his opening remarks. The Group leader, CA. Navin Gandhi gave a brief overview of the gift tax regime and its back door entry into the Income-tax Act, 1961. Thereafter, the group leader briefly explained the underlying principle and the scope of section 56(2)(x) of the Act. Subsequently, the group leader discussed in detail various issues relating to consideration, exception of ‘relatives’, valuation requirements for the said section and transfer of immovable property being covered under the ambit of section 56(2)(x). Also, the interplay between gift tax provisions and the Act was discussed. The session was quite interactive and participants got highly enriched with the rich experience of the Group Leader.

FEMA STUDY CIRCLE

Meeting on “External Commercial Borrowing- Recent Amendments” held on 5th February 2019 at BCAS Conference Hall

A FEMA Study Circle Meeting was held on 5th February, 2019 at BCAS Conference Hall where CA. Niki Shah led the discussion on the topic of “External Commercial Borrowing – Recent Amendments”. The Group leader discussed a new ECB framework which is divided into two parts now viz. foreign currency denominated ECB and Indian Rupees Denominated ECB. He also deliberated on the expanded list of eligible borrowers, recognised lenders, end use restriction, ECB Liability Equity Ratio, Limit and Leverages, Hedging provision, procedure and reporting requirements etc. The Speaker further elaborated as to whether LLP can take ECB and whether late submission fees is to be paid for each form and under what circumstances. The participants appreciated and benefitted immensely from the efforts put in by the group leaders who made the discussion very live.

“17th Residential Retreat” held on 8th, 9th and 10th February, 2019

Human Resource Development Committee organised 17th Residential Retreat on 8th, 9th and 10th February 2019 which was attended by 28 delegates including 8 couples. The theme of the Programme was ‘Principle Centred Leadership Spectrum’ at picturesque, serene and beautiful Rambhau Mhalgi Prabodhini, Keshav Shrushti, Bhayander West. Senior Mentor Mr. Gopal Sehjpal, ACC (ICF), an International Trainer in Behavioural and Leadership/Management facilitated as trainer.

President CA. Sunil Gabhawalla shared his views on leadership in his inaugural address. He touched upon the important qualities of a good leader i.e. Integrity, Positivity, Understanding, Listening and Smile. He also emphasized the significance of Clarity of purpose, building and grooming the team.
CA. Rajesh Muni, Chairman of HRD Committee, briefed the participants about various activities of the committee and shared details of the past 16 Residential Retreat Programs.

1) Trainer Mr. Gopal Sehjpal had various interactive sessions with the participants and shared the key points such as Principle, Centre and Leadership as under:
(a) Principles are Natural Laws that govern us. They are, never changing, operating everywhere at all time and virtues are personal choices. (b) Important qualities of a leader are passion, courage, humility and love. Love is treating others more than self. (c) Spiritual Quotient is more important than Intellectual and Emotional Quotient. (d) People live their life keeping in centre money, work, pleasure, health, self-image, friend, family, spouse, enemy, religion, etc. The right way is to have “Principles” as centre. (e) Success is optimization of efficiency (speed) and effectiveness (direction).

2) The Speaker also discussed that Spectrum signifies acronym VIBGYOR. (Vision, Introspection, Blue Print for success, Governance, Y Factor, Organisation, Relationship) and explained each characteristic of VIBGYOR as under:

Vision and mission

Organisation or family must evaluate its Strengths and Opportunities. Vision helps to visualise the unknown future and identify the potential obstacles and therefore enables one to come up with possible solutions to overcome them. It also brings enthusiasm in attaining the Goal and to move forward despite obstacles. It provides focus, clarity and a sense of purpose. It should be made in the context of Strength, Weakness, Opportunities and Threats. One must be aware of 35 time wasters categorised in seven areas (Planning, organising, staffing, Leading, Controlling, Communicating and decision making), introspect and overcome such obstacles.

Blue print for success:
It is a process of setting Goals and drawing action plans aligned with the Vision and Mission Statements.

Governance:
Governance relates to the tone at the top. It provides clarity on important parameters like Time, Cost and Resource Allocation, Statutory Compliance, Corporate Social Responsibility, Ethics and Values.

Y Factor: On a graph, Y axis represent results and X axis is for input and resources. It is an exercise of plotting inputs to evaluate productivity, proficiency and efficiency.

Organisation: Structure of reporting relationships vertically and horizontally to provide clarity on accountability.
Relationship: Intrapersonal and Interpersonal relationships have to be appropriate and conducive for synergy.

3) Important 8 Quality Management Principles are:

(i) Customer Focus (ii) Leadership (iii) Involvement of People (iv) Process Approach (v) System approach to management (vi) Continuous improvement (vii) Factual approach to decision making and (viii) Mutual beneficial supplier relationship.

4) Guide to break 12 Ineffective Habits

(i) Reluctance to claim your achievements (ii) Expecting others to spontaneously notice and reward your contribution (iii) Overvaluing expertise (iv) Building rather than leveraging relationship (v) Failing to enlist allies from day one (vi) Putting your Job before your carrier (vii) The Perfection Gap (viii) The Disease to Please (ix) Minimizing (x) Too Much (xi) Ruminating and (xii) Letting your radar distract you.

In the concluding session, on 8th February, a small clip of 10 minutes titled ‘Down the memory lane’, was screened. It took the participants down the memory lane, recounting the experiences of previous camps. It was a tribute to Late Shri Pradeepbhai. The regular participants who were emotionally connected with him were moved as they reminisced the experiences shared with Pradeepbhai. New participants had a very heart-warming experience too. On 9th February, participants enjoyed a campfire in the late evening with some dancing and singing. On 10th February, participants returned with some beautiful memories of the camp. The participants got highly enlightened and refreshed their memories of the past Residential Retreats.

International Taxation Committee

Half Day Seminar on “Selective Issue under FEMA” held on 9th February 2019 at BCAS Conference Hall

A half day seminar was organised by the International taxation committee on 9th February 2019 in the form of a panel discussion. The focus of the seminar was to discuss difficulties being faced in FEMA regulations.

The panellists comprised of senior ex-RBI executives – Mr. G Padmanabhan (Ex-Executive Director), Mr. Himansu Mohanty (ex-General Manager) and Dr. M. K. Singh (ex-Assistant General Manager, New Delhi). The session was chaired and moderated by CA. Rashmin Sanghvi. It was discussed that administration has been delegated to the banks. Different banks take different views. One is not able to clarify matters with RBI as it insists on approaching the banks first. This is causing tremendous difficulties. There were several interpretation issues. Panellists gave the background of the issues and agreed that these issues need to be resolved. One should make representations to RBI so as to bring about clarity. Some of the issues are explained below:

One was the need to have clarity on family Trusts. Today there are rich families with members in India and abroad. They wish to form trusts for succession planning. There is no clarity in case of trusts which is required. It was discussed that people also misuse the laws. In case of Trusts, it should not amount to a situation where non-resident beneficiaries can remit more funds out of India than what they can do without a family trust. The panellists suggested that one may write to RBI and request for a clarification by way of FAQ. As long as remittance of funds does not exceed that which is possible without a trust, it should be all right to create a trust.

Another issue was that there are several proposals from non-residents to purchase real estate and lease the same. RBI has permitted lease of the premises. However, is it possible for Indian entities with FDI to “buy and lease the premises”, or should the Indian entity “construct and lease the premises”? It was discussed that it is safer to take a conservative view. If the entity constructs the premises, it can lease it.

Overall the seminar brought out the issues under FEMA and that one should err on the safer side. Aggressive views can cause difficulties. The Seminar was a huge takeaway for the participants.

HRD STUDY CIRCLE

Study Circle meeting on “Management and Life Lessons from Mt. Everest” held on 12th February, 2019 at BCAS Conference Hall

HRD Study Circle of BCAS organised a meeting on 12th February, 2019 at BCAS Conference Hall which was addressed by Mr. Venkatesh Maheshwari. The Speaker spoke about the mountains calling him. It was his childhood dream to climb the mountain and reach the top. He followed the dream by research, intensive physical and climbing training, educating himself, getting physically and mentally fit etc. It was a tremendous effort.

He had to face fears and prepared himself that there are no short cuts to the top. When you do not prepare well, you will never get the mental strength. Self Belief, patience, commitment, effort, perseverance, honesty were among the many needed traits that helped him achieve his target of being on top of Mt. Everest.

He learnt many lessons in the process like in-resource management and planning every move, facing fear, do not do what you think you cannot do, need to stop and rest when you cannot make it. There is no need to push yourself to do something when you cannot. You have to be focussed and stay focussed to achieve, ask help when you need, team work, to name a few. The Speaker also mentioned that there are passions in life which we need to pursue and achieve satisfaction and fulfilment in life. The participants found the session very inspiring and interesting to emulate the achievers.

Suburban Study Circle Meeting on “GST – Recent Amendments, Notifications and Circulars” held on 15th February, 2019

The Suburban Study Circle had organised a meeting on “GST – Recent Amendments, Notifications and Circulars” on 15th February, 2019 at Bathiya & Associates, Andheri East which was addressed by CA. Jignesh Kansara. The speaker made a detailed presentation on the following amendments and notifications on Goods & Service Tax Act:

(a) GST Amendment Act 2018 (b) 31st GST Council Meeting (c) 32nd GST Council Meeting (d) Removal of Difficulties Orders (e) Recent Circulars and Notifications. The speaker had presented all the amendments highlighting the provisions applicable before the amendments. The practical examples and tabular formats helped the participants in understanding the impact of the changes. The participants benefited from the presentation shared by the speaker.

BCAS IN THE PRINT MEDIA

As always, the Bombay Chartered Accountants’ Society was in the news this last month with its Presidents, both present and past, being sought and quoted on several key issues.

It all started with the report in a leading city newspaper which said that tax officials, with a view to meet steep revenue targets, had started issuing prosecution notices to the directors of several multinationals (Economic Times, January 16, 2019). Among the MNCs issued such notices were Google, Facebook, Samsonite and KraftHeinz.

The report stated that the use of prosecution notices was tantamount to making these cases equivalent to criminal offences and gave the IT officers additional powers just like those with the police. As a result, relief in such cases would only be available from a magistrate’s court.

BCAS President CA. Sunil Gabhawalla was quoted in the report as saying, “Last year and this year, several notices have been issued across the board to several individuals and Indian and multinational companies, which is creating a lot of legal issues for them”.

For its part, the Indian Merchants’ Chamber told the Central Board of Direct Taxes (CBDT) that “these notices project a wrong image of the Indian government… It is driving them (MNCs) away by initiating criminal proceedings on a mechanical basis…” Such notices had previously been used only when concealment of black money or similar wrongdoing was suspected.

However, some prosecution notices had been issued even for cases involving small amounts. Besides, notices had been issued to two directors in each MNC; even directors not based in India had not been spared; in some cases, even companies that had failed to deduct paltry sums like Rs. 1,000 on an employee’s salary had received notices.

Apart from the BCAS and the IMC, the Chartered Accountants’ Association of Ahmedabad (CAA) had also questioned these developments, with the BCAS and the CAA sending a representation to the CBDT in the matter.

The newspaper stated that this development had stemmed from a “quota” that the CBDT had given to the tax officials because of a shortfall in collections. “CBDT imposing a ‘quota’ for assessing officers to file prosecution leads to such a grave situation, said Dilip Lakhani, a senior Chartered Accountant, who added that the attempt to raise revenue by forcing assessees to opt for payment of compounding fees to avoid criminal proceedings could only be termed as arm-twisting.

According to a statement by a senior official, tax officers had been asked to issue about 2,00,000 notices during the financial year. While the actual number of notices could not be confirmed, some sources said that in the case of MNCs at least 500 had been served notice.

In another report published in The Times of India on January 20, 2019, Mr. Sushil Chandra, CBDT Chairman, was said to have issued a circular on January 6 asking his cadre to send prosecution notices to those wilfully evading payment of outstanding taxes and also for substantial defaults in remitting TDS to the government.

The report quoted Mr. Ameet Patel, CA and Chairperson of the Taxation Committee and Past President of the BCAS, as saying that “for the smallest defaults like late payment of TDS; of self-assessment tax; delayed or non-filing of tax returns (including TDS); taxpayers are issued show-cause notices asking why prosecution proceedings should not be launched against them. Even a mere non-filing of appeal against any addition to income or disallowance of expenditure made during assessment is a ground for launching prosecution. Further, tax-payers are given a very short period within which to respond.” The BCAS, the IMC, the CAA and other associations of CAs all over India had filed a representation with Revenue Secretary Ajay Bhushan Pandey protesting against the use of prosecution provisions in a mechanical manner, with minor mistakes being treated as major offences at par with large-scale evasion.

The representation pointed out that such action (prosecution notices) vitiated the promise of a non-adversarial tax regime. Even as many other steps (e-assessment and speedy refunds) had been taken to benefit tax-payers, the spate of prosecution notices sent a bad signal, it added.

BCAJ Admin

MISCELLANEA

Miscellanea was started by Narayan Varma
and Ajay Thakkar in 1984. A number of people compiled it for few years
including Rashmin Sanghvi, Uday Chitale, Ashutosh Pednekar, etc. Rajesh Muni
and Raman Jokhakar manned it between 1999-2000 to 2004-05. Tarun Singhal joined
in 2005 and continued with Raman till 2017. Present contributors Jhankhana
Thakkar joined in
2016-17 and Chirag Chauhan in January, 2018.

The
aim of this column was to bring out relevant and useful news and views ‘in
short’.

1. Technology

11. Apple’s
AirPower wireless charger may already be in production – and shipping soon

In September 2017, Apple
announced it would ship its AirPower product by the end of 2018. Expectations
grew with each passing quarter last year that the charging pad would finally
arrive. But Apple missed its own deadline and pundits surmised the company was
struggling with technical issues, such as how to regulate different charging
requirements on a single pad using the Qi wireless charging specification.

After failing to meet its
own shipping timeline in 2018, Apple is now thought to have two manufacturers
ramping up production of its AirPower wireless charging pad, according to a
Hong Kong-based website that specialises in device charging news. While there
may be more than a dozen multi-device wireless chargers technically available
now, but none have introduced a product that can handle all three of Apple’s
products: smartphone, watch and earbuds.

(Source:
www.itworld.com)

12. Facebook
testing stories feature that will encourage your friends to join you at parties

Facebook
wants to make invitation a simpler process. The social media company is
bringing a new Stories feature that will encourage your friends to join you at
events. The company announced that it will test a new feature that lets users
share events that they are interested in attending in to their Story and then
plan meet ups with friends who are also interested in attending the same.

So how
will the feature work? You will see a new option “Share to your
story” when you visit any event’s page on Facebook. Tech Crunch explains
that your friends will see a tappable sticker when you share the event to your
story. The sticker would include details of the event and your friends can
directly reply from the Story if they are “interested” in going.

Facebook
announces the new feature at the time when the company is losing its young
users at a faster pace. The eMarketer’s report from 2018 shows reveals that
last year less than half internet users in the US aged between 12- 7 used
Facebook at least once a month. The feature aims to attract younger users as
many of them have now moved to Instagram and prefer the app over Facebook for
posting photos and Stories.

(Source:
www.indiatoday.in)

13. Google
removes thousands of malicious Android apps and millions of fake reviews on
Play store

It’s high time, Google
scales up the security to ensure shady apps don’t enter Play store.

In the past few years,
Google, despite taking stringent measure to screen malicious apps creeping into
the Play, has been unable to control them. Now, the company in a massive
cleanup drive has removed millions of fake reviews and thousands of bad apps.

Recently, Google received
complaints from concerned app developers that the Play store rating systems are
being rigged with fake reviews affecting their rankings, which apparently
driving the consumers away. Taking the cognisance of the issue, Google studied
the pattern and found several targeted false reviews, the presence of profane
language to downgrade an app and also incentivised (paid) top ratings to
boosting rankings of the app.

During the screen, the
company unearthed thousands of shady apps with malicious features and has
removed them in addition to weeding out millions of fake reviews from the Play
store in just one week.

The
company has also urged Android app developers not to indulge in shady review
tactics by offering incentives such as free in-app purchases or gifts to lure
their users to write fake ratings or else risk getting banned from Play store.

Over the last one month,
Google has weeded out close to 35 apps from the Play store over fake ads.
Detailed investigations revealed that the apps were riddled with malicious
codes to create fake click impressions via users to generate ad revenue. Also,
some were found to steal financial information from the Android phone.

There were just two of the
techniques, app developers had several other methods and did them without
obtaining the user consent

(Source:
International Business Times)

2. Environment

14. Antarctica ice melting increased by 280% in
last 16 years, study says

Yearly loss of ice from
Antarctica has increased by an alarming rate of 280 per cent between 2001 and
2017, according to a study which showed that accelerated melting caused global
sea levels to rise more than half an inch in the last four decades.

The researchers,
including those from Nasa’s Jet Propulsion Laboratory (JPL) and Utrecht
University in the Netherlands, were able to discern that between 1979 and 1990,
Antarctica shed an average of 40 gigatonnes of ice mass annually From 2009 to
2017, about 252 gigatonnes per year were lost. The pace of melting rose
dramatically over the four-decade period. From 1979 to 2001, it was an average
of 48 gigatonnes annually per decade. The rate jumped 280 per cent to 134
gigatonnes for 2001 to 2017.

For
the study published in journal Proceedings of the National Academy of Sciences,
researchers conducted the longest-ever assessment of remaining Antarctic ice
mass. Spanning four decades, the project was also geographically comprehensive;
the research team examined 18 regions encompassing 176 basins, as well as
surrounding islands. As climate warming and ozone depletion send more ocean
heat toward those sectors, they will continue to contribute to sea level rise
from Antarctica in decades to come

(Source: www.economictimes.com)

3. World News

15. China
to cut taxes, keep policy flexible to counter slowdown

China plans to slash taxes,
step up spending and provide ample financing to private and small enterprises
to help counter the country’s worst slowdown since the global financial crisis
and the impact of a bruising trade war with the U.S. The People’s Bank of China
is confident it can keep the value of China’s currency, the yuan, steady while
maintaining a stable but flexible monetary policy

The plans for 2019 outlined
included specific measures such as raising the maximum income levels for tax
exempt companies and individuals and reducing the tax rate. The government
plans to begin construction of major projects and promote settlement of rural
migrants in cities, slash bureaucratic and anti-competitive red tape, cut
energy consumption and open more business areas to foreign investment, said
Lian Weiliang, vice chairman of the National Development and Reform Commission,
China’s planning agency.

(Source: economictimes.com)

16. Big
Four face major overhaul in U.K.

The Big
Four accounting firms may have to split their operations into separate U.K.
business units as part of a sweeping overhaul of the industry proposed by
regulators that stopped short of the measures sought by some critics. The
Competition and Markets Authority (CMA) said audit work should be split from
the much larger consulting business at an operational level, but held off on
recommending a full structural breakup or a cap on auditor’s market share. A
further report said the U.K. needed a tough new watchdog to prevent the
failings of the past.

Stung by a
string of scandals at prominent British firms including Carillion Plc, the
government demanded regulators set out reforms to roll back the dominance of
the largest accounting firms. The industry has had a turbulent year, with
record fines and reprimands in the U.K.

Separately
the U.K. government said it agreed with a new report that the country’s heavily
criticised Financial Reporting Council should be abolished and replaced with a
new accounting regulator. The new watchdog, the Audit, Reporting and Governance
Authority, would have powers to investigate companies, their accounts and
governance.

The FRC
was accused of being to be too close to the firms it oversaw, especially
Deloitte, KPMG, EY and PricewaterhouseCoopers. “I have sympathy with the
view that the FRC has tended overall to take too consensual an approach to its
work,” said John Kingman, who led a review of the regulator.

To
encourage more competition, the CMA said it currently preferred to have the
largest companies require joint reviews with two audit firms signing off on the
accounts rather than a market share cap on the auditors.

(Source:
www.accountingtoday.com)

4. Startups

17. Kochi
gets the biggest startup incubator in India

Kerala Chief Minister Pinarayi Vijayan on Sunday inaugurated India’s
biggest startup incubator at Kochi. The startup incubator- the Integrated
Startup Complex– which is housed inside a 1.8-lakh square-feet facility at the
Technology Innovation Zone (TIZ) in Kochi, is the home to host of segments that
cater to the modern technology.

The startup incubator, which has been setup under the watchful guidance
of the Kerala Startup Mission (KSUM), houses a number of modern facilities such
as the Maker Village that promotes hardware startups, the Bionest that promotes
medical technologies, BRINC which is India’s first international accelerator
for hardware startups, BRIC which aids developing solutions for cancer
diagnosis and care, and a Centre of Excellence, that has been backed by some of
the prominent tech companies that operate in India. Apart from boosting the
startup ecosystem, the state government is also planning to give 2.5 lakh
direct jobs in IT with an aim of fostering social development in Kerala.

(Source:
www.indiatoday.in)

18. Books
to help a busy entrepreneur like you avoid burnout this year

Books are
wisdom in refined, concentrated form. In that spirit, I’d can recommend several
books to buoy busy, frenetic or otherwise on-the-verge-of-burning-out
entrepreneurs. Some are new. Some are old. Some tackle the problem of burnout
head on, while others do so indirectly. Either way, I’m confident that each of
the below can increase your inspiration this year, and well beyond.

1. Log
Off: How to Stay Connected After Disconnecting– Blake Snow.

Snow, a
seasoned journalist, gives us this quick-read, which explains how to live large
on low-caloric technology, to increase face time with actual people, outperform
workaholics in half the time and increase our productivity with fewer online
distractions. Snow also does more than just throwing a lot of alarming
statistics and life-changing recommendations at the reader. Rather, he weaves
both into his own decade-long story, making his advice easier to follow and
remember. The concepts he gives names to, like the King Complex, the Rule of
Thirds, Reformed Luddism and the Four Burners Theory, are sure to spike your
productivity. Bonus points for being the shortest book on my list.

2. The
Last Place on Earth — Roland Huntford

Roland
Huntford’s account of this legendary tale of the 1911 South Pole race between
Roald Amundsen and Robert Scott is well researched and full of proven business
insights. While both men were incredibly brave, their individual approaches to
preparedness, forecasting and strategy for reaching the South Pole first were
strikingly different.

This was
so much so that after reading this book, you’ll probably take greater care in
leaving nothing to chance. You’ll also finish this book with a greater
appreciation for early explorers and how you might adopt similar success
strategies in your admittedly less dangerous existence. It’s crazy to think
this story still hasn’t caught Hollywood’s attention.

3. Console
Wars: Sega, Nintendo, and the Battle that Defined a Generation — Blake Harris

Looking
for a fun read? Need a fresh perspective before planning your next marketing
campaign? Look no further than Harris’s riveting account of one of the ‘90s
greatest rivalries. “There was no such thing as a magic touch,” writes Harris.
“The only thing it takes to sell toys, vitamins, magazines (or anything) is the
power of story. That was the secret. That was the whole trick: to recognize
that the world is nothing but chaos, and the only thing holding it (and us)
together are stories.” Console Wars is as good as (if not better than) David
Sheff’s seminal Game Over: How Nintendo Conquered The World.

4. A Short
History of Nearly Everything — Bill Bryson

Bryson is
one of the most beloved non-fiction writers today. And, here, he impressively,
humorously and succinctly summarises how we “big banged” from nothing to get
where we are today as a species. To accomplish this, Bryson spent three years
researching the world’s greatest scientific discoveries and interviewing the
people who know them best.

Simply
put, the result is awe-inspiring. “It has been suggested that there isn’t a
single bit of any of us — not so much as a stray molecule — that was part of
us nine years ago,” Bryson writes. “It may not feel like it, but at the
cellular level we are all youngsters.”

5. Peak
Performance: Elevate Your Game and Avoid Burnout with the New Science of
Success –Brad Stulberg and Steve Magness

What would happen if a successful management consultant and Olympic
coach teamed up to study and distill the secret of top performers? Thankfully,
they have. This new book is the result and covers how anyone can achieve his or
her best. “Whether someone is trying to qualify for the Olympics, break ground
in mathematical theory, or craft an artistic masterpiece, many of the practices
that lead to great success are the same,” the authors assert.

For
example, “stress plus rest equals growth” means you get better
results when you design and live a routine-filled day; and having a greater
purpose keeps you focused and motivated.

6.
Thinking Fast and Slow — Daniel Kahneman

The better you understand the human mind, the wiser you’ll know how to
use, master, and leverage it. That’s why everyone — entrepreneurs very much
included — should read this breakthrough book by Nobel Prize-winning
behavioral scientist Kahneman. After decades of research, Kahneman was the
first to discover that the brain makes decisions in two ways. The first is
“fast thinking,” which makes everyday, mostly involuntary and largely gut-based
decision-making possible. This means decisions like eat this, pick up that,
move out of the way and stay alive.

“Slow
thinking,” on the other hand, means slow to engage and deliberate, even lazy,
because this kind of thinking requires significantly more energy. The trick to
being a better thinker, therefore, lies in knowing and understanding how to
trigger your “slow thinking” more often. This book shows you how.

(Source:
www.entrepreneur.com)

BCAJ Admin

BOOK REVIEW

“CRASH –
Lessons from the entry and exit of CEOs” by Shri R. Gopalkrishnan

Shri R. Gopalkrishnan is a
well known Corporate Leader and Management Author and Advisor and needs no
Introduction. However, a few words of Introduction will be useful to a Young
reader.

He studied physics at
University of Kolkata, Engineering at IIT Kharagpur. He has attended advanced
Management Program at Harvard Business School. He has served as the Chairman of
“Unilever Arabia, M.D. of Brooke Bond Lipton, Vice Chairman of Hindustan Lever,
and as the Executive Director of Tata Sons and several Tata Group Companies.
Presently, he is a Corporate Advisor. He is actively engaged in both
Instructional and Inspirational Speaking. He is the author of bestselling books
such as The Case of the Bonsai Manager, When the Penny Drops: Learning
What’s Not Taught, and A Biography of Innovations: From Birth to Maturity.

While many people talk
about the path to the top of organisations, very few are honest about how
difficult it is to stay at that position. Shri R. Gopalakrishnan
analyses the ‘software’ challenges, which leaders confront every day, and
shares the insights he has gained developing, managing, investing in and
supervising a variety of companies. The author shows that great leaders
continue to excel not just because of their skills and intelligence but also by
connecting with others using emotional competencies like empathy and
self-awareness.

The book is divided into 2
parts- Part One has 5 chapters and Part 2 has 15 Chapters.

In part One of the book,
the Author explores many pertinent questions: Is company performance a
surrogate for leadership and CEO Performance? If a company falters, is it
purely related to CEO performance? Conversely, if a company does well, is it a
definite credit to the leader?

The Author observes that to
be successful, a CEO requires cognitive intelligence as well as an intuitive
emotional intelligence – which means he or she must have a responsive sense of
empathy for the views of various stakeholders. In his experience, once a person
gets into a leadership role, there are forces that cause his or her emotional
intelligence or sense of empathy to shrink, This poses the real and hidden
challenge to the leader, a challenge he or she is unprepared for. The power of
a leader damages his/her brain. The damage cannot be totally avoided, but its
pernicious effects can be mitigated.

The Author then goes to
examine why power causes brain damage. He examines: What brings out the
best in a person? Perhaps a need to challenge one’s capability? He
opines: when leaders feel that their intelligence is being tested rather than
being merely incentivised through money their motivation is triggered. Money
helps, but ambition is aroused of internal drives and challenges. This is what
people in Leadership positions experience when they assume a bigger
responsibility.

The Author observes that
power causes a significant behavioural change in leaders. Leaders tend to be
self assured, they need to be so if they have to lead their people and the line
that divides self-assuredness and over confidence is a thin one. The leader’s
confidence can be rooted in logic and data, or it can be rooted in feelings and
emotions. If his /her confidence is based on the best available data, then the
leader comes across as authentic. It is a positive form of self confidence. If
the leader’s confidence is not data based, the leader may seem impetuous or
someone who is not rooted in reality. This is negative form of self confidence.

The author
goes on to examine how and why power damages the leader’s brain. What happens
in cases of behavioural change? Does the person change because of power or
because of being placed in a radically different context? Or do the people
around the new leader view him/her through a separate set of lenses?
The Author puts it simply, and shorn of jargon, that Leaders loose a bit of
their emotional capacities, those very emotional capacities that were essential
to their rise. That holding power change the way leaders process their world.
They became impulsive, less risk–aware and less adept at seeing things from
other people’s perspective. That power blinds the leader to others’
perspectives, power turned the leader into an abstract thinker, power leads to
unrealistic optimism about goals and power leads to the view of the world in
terms of goals already set.

The Author concludes that
power intoxicates and it impairs human judgement-in short the acquisition of
power causes brain damage. Every leader whether in politics or society or
business is vulnerable to this danger. Several leaders learn to cope with the
inevitable threats and dangers, but many fail. They become victims of
the affliction.

Thus, in Part One of the
Book the Author examines the above questions and issues on the basis of his
extensive study and review of the available literature on the subject, and his
long years in business in leadership positions.

In part Two of the book,
divided into 15 chapters, it tells similar stories of various well known
business leaders who exited from their CEO positions for one reason or
another : Carly Fiorina HP at HP, Jamie Dimon at Citibank, Vikram Pandit at
Citigroup, John R. Walter at AT&T, Lee Iacocca & Mark Fields at Ford
Motors, Michael Ovitz at Walt Disney Company, G.Richard Thoman at Xerox, Jim
Donald at Starbucks, Travis Kalanick at Uber, Chris Viehbacher at Sanofi,
Ramesh Sarin at Voltas India, Klaus Kleinfeld at Arconic, Anshu Jain at
Deutsche Bank, Vishal Sikka at Infosys. It is pertinent to note that none of
the aforesaid leaders had to exit either due to moral turpitude or financial
misdemeanour.

The Author narrates an
incident involving a heated exchange between J.R.D. Tata and a Senior Director,
A.D. Shroff, who sent his resignation from the Tata Group. The matter was
patched up by J.R.D with a great sense of egalitarianism and humility,
in his letter to A.D. Shroff, dated 23.08.1951:

“I was surprised and
upset at receiving your letter. I do not remember exactly the words I used
during the somewhat heated exchange at the agents’ meeting but my complaint to
you was merely that an argument you used to score a debating point over me was
not an honest one. That is surely a far cry from questioning your honesty and I
am surprised that you interpreted it in that way.

You have a
right to resent my speaking angrily or showing your discourtesy as a result,
and for that I sincerely apologize, but if friends and associates decided to
part every time they had an argument, life would become
very difficult.”

In the
Epilogue, the Author quotes Thomas Middelhoff, a top–notch and famous executive
in Germany, CEO of the German media giant- Bertelsmann, later on found guilty
of misusing corporate funds and sentenced to 3 years in jail on charges of
embezzlement and related tax frauds, after his release from the jail from an
interview by Financial Times in May 2018, “I was out of touch with reality and
thought that certain rules did not apply to me. Ability brings you to the
top, but character keeps you there.” He admitted that a key flaw in his
character was constantly craving public attention and affirmation. Over the
years, he felt that he had been carried away by narcissism and hedonism.

The book is based on the
Author’s extensively study and research on the subject, which is borne out by
copious notes at the end of the book running in about 30 pages wherein he has
given references to all his sources.

Filled with anecdotes,
analysis of various situations CEOs may find themselves in and unconventional
advice to help them, Crash: Lessons from the Entry and Exit of CEOs
is for veteran leaders as well as for those who aspire to start their own
ventures. This book is useful not only to CEOs and other Senior Management
Executives but also to every person who is running even a small or medium size
Organisation.

BCAJ Admin

RIGHT TO INFORMATION (r2i)

The column r2i was started in November,
2005 by Narayan Varma. The feature aimed to cover changes in the Act, RTI
success stories, current developments/issues and RTI decisions. The idea was to
encourage the members to use the power of RTI and become effective citizens.

Narayanbhai
single handedly wrote it for nearly 15 years till he was joined by 2 young
members. Since his passing away, Jinal Sanghvi has been writing it as the sole
author. When we asked her what keeps her going, she said: “The zeal of my
mentor, Varma sir and his dedication and love towards RTI”

PART A DECISION OF SUPREME COURT

? EVM is ‘information’ under
Right to Information Act, rule Central Information Commission

An Electronic Voting Machine (EVM) is “information” under the Right to
Information Act, the Central Information Commission has ruled.

The Commission was hearing the appeal of an RTI applicant who had asked
the Election Commission for an EVM but was denied.

Chief Information Commissioner (CIC) Sudhir Bhargava ruled that “the EVM
which is available with the respondent [ECI] in a material form and also as
samples … is an information under the RTI Act.”

EVMs have been in the spotlight recently as several Opposition leaders
have raised doubts about the credibility of the machines. They have also
demanded that the ECI cross-check 50% of results with voter-verifiable paper
audit trails (VVPAT) in the upcoming Lok Sabha poll.

Mr. Bhargava noted that the definition of information under Section 2(f)
of the RTI Act includes “any material in any form, including records,
documents, memos, e-mails, opinions, advices, press releases, circulars,
orders, logbooks, contracts, reports, papers, samples, models, data material
held in any electronic form…”

The CIC upheld applicant Razaak K. Haidar’s contention that the terms
“models” and “samples” should apply to an EVM.

ECI Under-Secretary Soumyajit Ghosh admitted that “models/samples of EVM
are available with the ECI, but the same are only kept for training purpose by
the ECI, and not saleable to the general public.”

Fresh argument

Mr. Ghosh also argued that the information was exempted from disclosure
under section 8(1)(d) of the RTI Act as “the software installed in the machines
is an intellectual property of a third party, the disclosure of which would
harm the competitive position of the third party concerned.”

Mr. Bhargava noted this fresh argument, but did not rule on it. Instead,
he directed the ECI to file an appropriate response to the appellant within
four weeks, as it had erroneously denied the information sought, using Section
6(1) of the RTI Act, which does not deal with grounds for exemption.

(Source:https://www.thehindu.com/news/national/evm-is-information-under-right-to-information-act-rule-central-information-commission/article26358323.ece
)

PART B RTI ACT, 2005

? BCAS Right To Information
Clinic

• Year of Commencement: 2006

• Total years the Clinic has
been in operation: A little more than 12 years

• Fees charged: No fees charged
/ Services are provided pro-bono

• Days of operation: 2^nd,
3^rdand 4^th Saturday of every month

• Timing: 11:00 am to 1:00 pm at
BCAS premises

• RTI applications made or
advised provided: Average of 5 per week

n Some Matters dealt under RTI by the clinic:

n State Government, Central Government, MCGM
(BMC), Income Tax, Sales Tax, Gifts Tax, Wealth Tax, Service Tax, Value Added
tax (VAT), GST, Professional Tax, MTNL, BEST, Railways, Excise Duty, Police,
Bank, Bond, Co-op Banks, Co-op Societies, Voter ID Cards, Caste Certificates,
PPF, EPF, Pension, Air India, MHADA amongst many others.

• Objective of the Right to
Information Act: The basic object of the Right to Information Act is to empower
the citizens, promote transparency and accountability in the working of the
Government, contain corruption, and make our democracy work for the people in
real sense. It goes without saying that an informed citizen is better equipped
to keep necessary vigil on the instruments of governance and make the
government more accountable to the governed. The Act is a big step towards
making the citizens informed about the activities of the Government.

• The RTI Act empowers Indians
to do the following:

Request any information from any public office, Take copies of the
documents, Inspect those documents, Inspect the progress of works and, Take
samples of materials used at work sites

PART C IINFORMATION
ON & AROUND

Unaided schools, colleges under RTI ambit
now

Students and their parents running from pillar to post for getting
information from unaided privately managed high schools, secondary schools and
colleges have a reason to cheer as the Chief Information Commission (CIC) has
ruled that all recognised unaided high, secondary schools and colleges fall
under the preview of the Right to Information (RTI) Act.

Consequently,
the Director, Higher Education, has designated all District Education Officers
(DEOs) as Public Information Officers (PIOs) of respective districts for
furnishing relevant information, while the Additional Director or Joint
Director (Administration) will be the first appellate authority under the Act.

The question whether purely private high schools and colleges, not
getting any aid from the government be brought under the preview of the RTI
Act, had been there for quite some time. Following an appeal filed by one
Balbir Singh, the state CIC had issued directions to the Education Department
to appoint the PIOs and an appellate authority for these educational
institutions to facilitate people at large to seek information under the RTI
Act, 2005.

Now, the CIC has passed interim orders in appeals filed against a
senior secondary school in Una district and a high school in upper Shimla,
saying: “Given the definition of ‘information and appropriate government’ in
section 2(f) and section 2(a) of the RTI Act, the information available with
the ‘public authority” (Education Department) under the Right to Education
Act-2009, the HP Private Education Institutions (Regulation) Act-1997 or any
other regulatory mechanism related to any private body which can be accessed by
a ‘public authority’ is covered under ‘information’ and the same has to be
provided by the Education Department.

(Source:https://www.tribuneindia.com/news/himachal/unaided-schools-colleges-under-rti-ambit-now/735081.html)

In RTI Reply To Telangana Voter
Deletions, Poll Commission Admits Lapses

The names of a large number of voters in Telangana were deleted from
electoral rolls without due procedure ahead of last year’s assembly elections,
responses to queries under the Right To Information Act has revealed.

Reports of large-scale voter deletions had sparked anger during the
Telangana elections on December 7. It had been reported how a software that
linked voter IDs with Aadhaar may have played a role in the deletions.
Responses to RTI queries now show there were flaws in the verification process.

A letter dated 8^th August 2015, written by then Chief
Electoral Officer of Telangana, Bhanwar Lal, to Sumit Mukherji, Secretary of
the Election Commission, states “door to door verification not conducted
properly” in 24 assembly seats of the Greater Hyderabad Municipal
Corporation Area and there were “many complaints that BLOs (Booth Level
Officers) have not visited houses”.

Between February and August 2015, the Election Commission had carried
out the National Electoral Roll Purification and Authentication Programme or
NERPAP, as part of which, voter IDs were linked with Aadhaar through a software
to weed out duplicates.

But before someone cane be deleted, the name has to be on electoral
rolls first.

Rules say the Election Commission has to go door-to-door issuing a
notice to each voter. If a house is
locked, the official is supposed to visit two more times and even then if the
voter is not available, he has to paste a sticker asking her to contact the EC.

Replies to the RTI indicate this was not done.

Srinivas Kodali, a cybersecurity researcher who filed the RTI, claims
the Commission is hiding a lot more.

“The Election Commission, UIDAI and Chief Electoral Officer of
Telangana have consistently denied the role of Andhaar and state resident data
hub on voter deletions,” he said, accusing them of hiding facts.

“Even now, we don’t know the details of the pilot projects which
have taken place in Telangana. The Election Commission must answer for this.
They need to delete Aadhaar data with them, voter data with government and give
the lists of deleted voters”.

Rajath Kumar, the current Chief Electoral Officer of Telangana, claims
even if some names were deleted, the Commission has solved the issue by giving
ample opportunity to voters.

“The NERPAP exercise was carried out in 2015 and subsequently
there have been not only the annual revisions in 2016, 2017 and 2018, but we
also had the elections in 2018, during which 26 lakh voters were registered,
both new as well as those who got re-enrolled,” Mr Kumar said.

The commission, he said, has carried out a drive now to prepare the
list with effect from 1^stJanuary in which 17.72 lakh voters have
come in, “so we have given maximum amount of opportunity for those whose
names were deleted at that time”.

“The best that I can do as current CEO is to give them maximum
opportunity to re-enroll themselves,” Mr Kumar added.

(Source:https://www.ndtv.com/telangana-news/in-rti-reply-to-telangana-voter-deletions-poll-commission-admits-lapses-1999191
)

Cryptocurrencies in India legal,
regulation in final stages, reveals RTI query

The Indian government is in the final stages of formulating regulations
on cryptocurrencies, according to an RTI response from the Department of
Economic Affairs.

The response was with regard to the RTI filed by Coin Crunch India on
December 13, 2018, asking whether the panel on cryptocurrency has recommended a
ban on Bitcoin and if they have submitted the report to the Ministry of
Finance.

“The report of the Committee is in the finalisation stage, hence,
prohibited under section 8(3) of RTI Act, 2005,” the ministry said in its
response.

(Source:https://www.moneycontrol.com/news/business/cryptocurrency/indias-cryptocurrency-regulation-in-final-stages-3447481.html)

Pune RTI activist found dead

An RTI activist missing since January 30 was found dead in Pune
district, a police officer said on Tuesday.

Police suspect Vinayak Shirsath, 32, was murdered.

The decomposed body was found near a village on Lavasa Road on Monday
evening, the officer said.

Shirsath, a resident of Pune city, was reported missing on January 31.
His family had registered a police complaint.

“We later registered a kidnapping case on February 5 after his
family raised a suspicion that he might have been abducted as he had raised his
voice under the Right to Information (RTI) Act against illegal construction
work in some parts of the city,” the police officer said.

Shirsath’s family pointed fingers at several people linked to the real
estate sector, but during the probe all of them were found to be close friends
of the deceased, he said.

A case has now been registered under IPC sections 302 (murder) and 201
(causing disappearance of evidence of offence) and a probe is under way, the
police said.

(Source:https://www.telegraphindia.com/india/pune-rti-activist-found-dead/cid/1684353)

RTI Clinic in March 2019: 2^nd, 3^rd, 4^th
Saturday, i.e. 9^th, 16^th and 23^rd 11.00 to 13.00 at BCAS premises.

BCAJ Admin

FROM PUBLISHED ACCOUNTS

This
monthly feature was started in August, 1976 and contained the description
“Notes as appeared in printed balance sheet of various companies regarding
maintenance of proper records of Fixed Asset”. It contained only two pages and
notes were taken from seven companies. No author name was stated.

From
1980-81 N H Kishnadwala wrote the feature till 1986-87. Nayan Parikh took over
from him from 1987-88 till 1994-95 along with other co-authors during that
time. In 1995-96 Ashok Dhere and Himanshu Kishnadwala carried it forward.
Himanshu has been contributing for 24 years now. Many others joined him during
that time for few years. Since 2009-10, Himanshu has been the sole contributor
to this 39-year-old feature.

In the early days, physical annual reports
had to be procured and then reviewed. Many people had to be requested to send
annual reports of companies. While earlier version carried abstracts from
Indian companies, the present feature covers reporting done by foreign
companies too. Feature covers new disclosures and notes, conflicting
disclosures by companies for accounting standards, comments in audit report and
other disclosures.

Limited Review
report containing ‘Qualification’ for potential Inventory losses and ‘Emphasis
of Matter’ for managerial remuneration and other pending inquiries on certain
past transactions and litigation

UNITED SPIRITS LTD (quarter ended 31^st
December, 2018)

From Statutory Auditors’ Limited Review
Report

Basis for Qualified Conclusion

4. We draw your attention to Note 11 to the
Statement, which states that the Company has come across differences in the
process losses and potential resultant differences in the inventory of few
categories of work in progress in certain plants, for which the company is
taking appropriate steps as described in the aforesaid Note. At this stage the
Company is not able to determine the related financial impact, if any, and
consequently we are unable to comment on the impact of this matter on the
Company’s results for the quarter ended 31^st December, 2018, as
reported in the Statement.

Qualified Conclusion

5. Based on our review conducted as above,
except for the matter stated in Basis for Qualified Conclusion in paragraph 4
above, nothing has come to our attention that causes us to believe that the
Statement has not been prepared in all material respects in accordance with the
applicable Accounting Standards prescribed u/s. 133 of the Companies Act, 2013
and other recognised accounting practices and policies, and has not disclosed
the information required to be disclosed in terms of Regulation 33 of the
Listing Regulations, 2015, including the manner in which it is to be disclosed,
or that it contains any material misstatement.

Emphasis of Matter

6. We draw attention to the following matters:

a) As explained in Note 6 (a) to the Statement,
the Managerial remuneration for the year ended 31^st March, 2015
included amounts paid to managerial personnel in excess of the limits
prescribed under the provisions of Schedule V to the Companies Act, 2013 by Rs.
134 million to the former Executive Director and Chief Financial Officer (ED
& CFO). The Company has initiated steps, including by way of filing a suit
for recovery before the jurisdictional court, to recover such excess
remuneration from the former ED&CFO.

b) As explained in Note 3 to the Statement, upon
completion of the Initial Inquiry, which identified references to certain
Additional Parties and certain Additional Matters, the MD & CEO, pursuant
to the direction of the Board of Directors, had carried out an Additional
Inquiry that revealed transactions indicating actual and potential diversion of
funds from the Company and its Indian and overseas subsidiaries to, in most
cases, Indian and overseas entities that appear to be affiliated or associated
with the Company’ erstwhile non-executive Chairman and other potentially
improper transactions. The amounts identified in the Additional Inquiry have
been fully provided for or expensed by the Company or its subsidiaries in
earlier periods. Management is currently unable to estimate the financial
impact on the Company, if any, arising from potential non-compliances with
applicable laws in respect of the above.

c) As explained in Note 4 to the Statement,
pursuant to its strategic objective of divesting non-core assets and
rationalisation of its subsidiaries, the Company has commenced the
rationalisation process and has sought approval of regulatory authorities for
divesting its stake in an overseas subsidiary and liquidating three of its
wholly owned overseas subsidiaries (and three of its wholly owned step-down
overseas subsidiaries). The completion of the above divestment as well as
liquidations by the Company are subject to regulatory and other approvals (in
India and overseas). At this stage, it is not possible for the management to
estimate the financial impact on the Company, if any, arising out of potential
historical non-compliances, if any, with applicable laws, with respect to its
overseas subsidiaries.

d) As explained in Note 8 to the Statement, the
Company is in litigation with a bank (“the Bank”) that continues to
retain the pledge of certain assets of the Company and of the Company’s shares
held by USL Benefit Trust (of which the Company is the sole beneficiary)
despite the Company prepaying the term loan to that bank along with the
prepayment penalty and further depositing an additional sum of Rs. 459 million
demanded by the Bank and as directed by the Hon’ble High Court of Karnataka
(the “Court”). The Court has directed the Bank not to deal with the
pledged assets of the Company (including the shares held by USL Benefit Trust)
as mentioned above till the disposal of the original writ petition filed by the
Company in the Court.

e) Note 7 to the Statement:

i) regarding clarifications sought by
Securities and Exchange Board of India on matters covered by the Company’s
Initial Inquiry and Additional Inquiry and certain aspects of the agreement
entered into by the Company with its erstwhile non-executive Chairman to which
the Company has responded;

ii) regarding various issues raised and show
cause notices issued pursuant to an inspection u/s. 206(5) of the Companies
Act, 2013 by Ministry of Corporate Affairs/ Registrar of Companies, Karnataka,
alleging violation of certain provisions of the Companies Act, 1956 and
Companies Act, 2013, to which the Company had responded. Further, the Company
has received a letter dated 13^th October, 2017 from the Registrar of
Companies, Karnataka (the “Registrar”) inviting the Company’s
attention to the compounding provisions of the Companies Act, 1956 and
Companies Act, 2013 following the aforesaid show cause notices. The Company
thereafter had filed applications for compounding of offences with the
Registrar in relation to three show cause notices, applications for
adjudication with the Registrar in relation to two show cause notices and had
requested the Registrar to drop one show cause notice based on expert legal
advice received, for which response is awaited.

iii) regarding the ongoing investigation by the
Directorate of Enforcement in connection with the agreement entered into by the
Company with its erstwhile nonexecutive Chairman and investigations under the
provisions of Foreign Exchange Management Act, 1999 and Prevention of Money
Laundering Act, 2002 to which the Company had responded; and

iv) regarding clarifications sought by Authorised
Dealer banks in relation to certain queries from the Reserve Bank of India with
regard to remittances made in prior years by the Company to its overseas
subsidiaries, past acquisition of the Whyte and Mackay group, clarifications on
Annual Performance Reports submitted for prior years and clarifications on
compliances relating to the Company’s overseas Branch office, to which the
Company had responded.

Our conclusion is
not modified in respect of the matters described under paragraph 6 above.

From Notes to
Statement of Standalone Unaudited Results

3. Additional Inquiry

As disclosed in the
financial statements for the years ended 31^st March, 2017 and 31^st
March, 2018, upon completion of the Initial Inquiry which identified references
to certain additional parties and certain additional matters, the MD & CEO,
pursuant to the direction of the Board of Directors, had carried out an
additional inquiry into past improper transactions (‘Additional Inquiry’) which
was completed in July 2016 and which, prima facie, identified transactions
indicating actual and potential diversion of funds from the Company and its
Indian and overseas subsidiaries to, in most cases, Indian and overseas
entities that appear to be affiliated or associated with the Company’s former
non-executive Chairman, Dr. Vijay Mallya, and other potentially improper
transactions. All amounts identified in the Additional Inquiry have been
provided for or expensed in the financial statements of the Company or its
subsidiaries in prior periods. At this stage, it is not possible for the
management to estimate the financial impact on the Company, if any, arising out
of potential non-compliances with applicable laws in relation to such fund
diversions.

4. Subsidiaries
Rationalisation

a) In relation to its subsidiaries and pursuant
to its strategic objective of divesting non-core assets which began with the
divestment of Bouvet Ladubay SAS, Chapin Landais SAS and United Spirits Nepal
Pvt Ltd, the Company has reviewed its subsidiaries’ operations, obligations and
compliances, and made plans for their rationalisation through sale, liquidation
or merger (“Rationalisation Process”).

b) During the quarter ended 30^th
September, 2018, the Company entered into an agreement for the sale of its
entire 51% equity holding in Liquidity Inc. and has sought approval of
regulatory authorities for divesting its stake in Liquidity Inc., as well as
for liquidating two of its wholly owned overseas subsidiaries, United Spirits
Trading (Shanghai) Company Limited and Montrose International SA. During the
quarter ended 31^st December, 2018, the Company has also sought
regulatory approval in respect of liquidating its wholly owned subsidiary, USL
Holdings Limited including its three wholly owned step-down overseas
subsidiaries. The completion of the above sale as well as liquidations by the
Company are subject to regulatory and other approvals (in India and overseas).
During this Rationalisation Process, if any historical non-compliances are
established, the Company will consult with its legal advisors, and address any
such issues including, if necessary, considering filing appropriate compounding
applications with the relevant authorities. At this stage, it is not possible
for the management to estimate the financial impact on the Company, if any,
arising out of potential non-compliances if any, with applicable laws.

c) On 16^th January, 2019, the Company
completed the sale of its entire equity shares held by the Company in its
wholly owned subsidiary Four Seasons Wines Limited (FSWL) along with wine
brands and FSWL’s interest in its associate Wine Society of India (WSI), to
Quintella Assets Limited and Grover Zampa Vineyards Limited. The shares were
sold for a total sale consideration of INR 319 million. Following the
completion of this sale, the Company does not hold any shares in FSWL or WSI
and FSWL has ceased to be a subsidiary of the Company. Also refer Note 10.

6. Excess
managerial remuneration

a) The managerial remuneration for the
financial year ended 31^st March, 2015 aggregating Rs. 63 million and
Rs. 153 million to the Managing Director & Chief Executive Officer (‘MD
& CEO’) and the former Executive Director and Chief Financial Officer (‘ED
& CFO’), respectively, was approved by the shareholders at the annual
general meeting of the Company held on 30^th September, 2014. The
aforesaid remuneration includes amounts paid in excess of the limits prescribed
under the provisions of Schedule V to the Companies Act, 2013 by Rs. 51 million
to the MD & CEO and by Rs. 134 million to the former ED & CFO.
Accordingly, the Company applied for the requisite approval from the Central
Government for such excess remuneration. The Central Government, by letters
dated 28^th April, 2016 did not approve the Company’s applications.
On 24^th May, 2016 the Company resubmitted the applications, along
with detailed explanations, requesting the Central Government to reconsider approving
the waiver of excess remuneration paid. In light of the findings from the
Additional Inquiry, by its letter dated 12^th July, 2016, the Company
withdrew its application for approval of excess remuneration paid to the former
ED & CFO and has filed a civil suit before the jurisdictional court to
recover the sums from the former ED & CFO. Consequent to the notification
of section 197(17) of the Companies Act, 2013 effective 12^th
September, 2018, the pending application of MD & CEO resubmitted to the Central
Government seeking approval automatically stands abated. The Company has,
during January 2019, secured the requisite approval from shareholders by way of
postal ballot exercise approving the waiver of excess remuneration paid to MD
& CEO.

b) Certain amendments have been carried out, inter
alia, to section 198 and Schedule V of the Companies Act, 2013
(“Act”) by way of the Companies (Amendment) Act, 2017, which are
effective from 12^th September, 2018 (“Amendments”),
relating to the remuneration payable to directors by a company. The Company has
negative free reserves and accumulated losses of approximately Rs. 26,580
million as of 31^st March, 2018. Pursuant to these Amendments, the
accumulated losses of a company are required to be set off against the profits
in a given financial year while calculating the profit of the Company for such
financial year u/s. 198. Consequent to the aforesaid amendments, the profit of
the Company (calculated in terms of section 198) is expected to be negative for
the financial year ending 31^st March, 2019. As a result,
remuneration paid and payable to Executive Directors may exceed the limits as
per Schedule V read with section 197 of the Act for the year ending 31^st
March, 2019 and remuneration payable to Non-executive Directors is likely to
exceed the limits as per section 197 both read with section 198 as amended.

The Company has,
during January 2019 secured the requisite approval of the shareholders by way
of postal ballot exercise for the remuneration paid/ payable to the Executive
Directors and remuneration payable to Non-executive Directors for the financial
year ending 31^st March, 2019, 31^st March, 2020 and 31^st
March, 2021 or till the end of the Directors tenure of appointment/
reappointment, whichever is earlier, notwithstanding that such remuneration may
exceed the limits specified under section 197 and Schedule V of the Companies
Act, 2013 as amended.

7. Regulatory
notices and communications

The Company has
previously received letters and notices from various regulatory and other
government authorities as follows:

a) as disclosed in the financial statements for
the years ended 31^st March, 2016, 31^st March, 2017 and 31^st
March, 2018, from the Securities Exchange Board of India (‘SEBI’), in relation
to the Initial Inquiry, Additional Inquiry, and matters arising out of the
Agreement dated 25^th February, 2016, entered into by the Company
with Dr. Vijay Mallya to which the Company has responded. No further communications
have been received thereafter;

b) as disclosed in the financial
statements for the years ended 31^st March, 2016, 31^st
March, 2017 and 31^st March, 2018, from the Ministry of Corporate
Affairs (‘MCA’) in relation to its inspection conducted u/s. 206(5) of the
Companies Act, 2013 during the year ended 31^st March, 2016 and
subsequent show cause notices alleging violation of certain provisions of the
Companies Act, 1956 and Companies Act, 2013, to which the Company had
responded. The Company had also received a letter dated 13^th
October, 2017 from the Registrar of Companies, Karnataka (the ‘Registrar’)
inviting the Company’s attention to the compounding provisions of the Companies
Act, 1956 and Companies Act, 2013 following the aforesaid show cause notices.
During the year ended 31^st March, 2018, the Company filed
applications for compounding of offences with the Registrar in relation to
three show cause notices, applications for adjudication with the Registrar in
relation to two show cause notices, and requested the Registrar to drop one
show cause notice based on expert legal advice received. The Company is
awaiting a response from the Registrar to the aforesaid applications. The
management is of the view that the financial impact arising out of compounding/adjudication
of these matters will not be material to the Company’s results;

c) as disclosed in the financial statements for
the years ended 31^st March, 2016, 31^st March, 2017 and 31^st
March, 2018, from the Directorate of Enforcement (‘ED’) in connection with
Agreement dated 25^th February, 2016, entered into by the Company
with Dr. Vijay Mallya and investigations under the Foreign Exchange Management
Act, 1999 and Prevention of Money Laundering Act, 2002, to which the Company
had responded. No further communications have been received thereafter; and

d) as disclosed in the financial statements for
the year ended 31^st March, 2017 and 31^st March, 2018,
from the Company’s authorised dealer banks in relation to certain queries from
the Reserve Bank of India (‘RBI’) with regard to: (i) remittances made in prior
years by the Company to its overseas subsidiaries; (ii) past acquisition of the
Whyte and Mackay group; (iii) clarifications on Annual Performance Reports
(‘APR’) submitted for prior years; and (iv) compliances relating to the
Company’s overseas Branch office, to all of which the Company had duly
responded.

8. Dispute
with a bank

As disclosed in the
financial statements for the years ended 31^st March, 2015, 31^st
March, 2016, 31^st March, 2017 and 31^st March, 2018,
during the year ended 31^st March, 2014, the Company decided to
prepay a term loan taken from a bank in earlier years under a consortium
arrangement, secured by assets of the Company and pledge of shares of the
Company held by the USL Benefit Trust (of which the Company is the sole
beneficiary). The Company deposited a sum of Rs. 6,280 million, including
prepayment penalty of Rs. 40 million, with the bank and instructed the bank to
debit the amount from its cash credit account towards settlement of the loan
and release the assets and shares pledged by the Company. The bank, however,
disputed the prepayment. The Company has disputed the stand taken by the bank
and its writ petition filed on 6^th November, 2013 is pending before
the Hon’ble High Court of Karnataka. In August 2015, the bank obtained an ex
parte injunction in proceedings between the bank and Kingfisher Airlines
Limited (KFA), before the Debt Recovery Tribunal, Bangalore (‘DRT’),
restraining the USL Benefit Trust from disposing of the pledged shares until
further orders. The Company and USL Benefit Trust, upon receiving notice of the
said order, filed their objections against such ex parte order passed in
proceedings in which neither the Company nor the USL Benefit Trust were
enjoined as parties. In February 2016, the Company received a notice from the
bank seeking to recall the loan and demanding a sum of Rs. 459 million.
Pursuant to an application filed by the Company before the Hon’ble High Court
of Karnataka, in the writ proceedings, the Hon’ble High Court of Karnataka
directed that if the Company deposited the sum of Rs. 459 million with the
bank, the bank should hold the same in a suspense account and should not deal
with any of the secured assets including shares pledged with the bank till
disposal of the original writ petition filed by the Company before the Hon’ble
High Court of Karnataka. During the quarter ended 30^th June, 2016,
the Company deposited the said sum and replied to the bank’s various notices in
light of the above. The aforesaid amount has been accounted as other
non-current financial asset. On 19^th January, 2017, the DRT
dismissed the application filed by the bank seeking the attachment of USL
Benefit Trust shares. During the quarter ended 30^th September, 2017,
the bank filed an ex-parte appeal before the Debt Recovery Appellate Tribunal
(‘DRAT’), Chennai against the order of the DRT. During the quarter ended 31^st
December, 2017, the Company has been impleaded in the proceedings subsequent to
the DRAT’s order. The appeal is pending for final hearing. With regard to the
writ petition filed before the Hon’ble High Court of Karnataka, an early
hearing application was allowed and the hearing of the main matter has
commenced during the quarter ended 31^st December, 2018.

11. During
the quarter, the Company has come across potential differences in process
losses and potential resultant differences in the inventory of a few categories
of work in progress in certain plants. The Company is in the process of
undertaking a review in affected plants, with the help of an independent expert
as required, in order to ascertain the actual quantum of differences, if any.
Should the findings establish any differences, the Company will take
appropriate steps to understand the causes and address the same. At this stage,
the Company is unable to determine the related financial impact, if any,
arising from such potential differences. Accordingly, the results for the
quarter and the nine months ended 31^st December, 2018 do not include
any adjustment in respect of the above.

BCAJ Admin

CORPORATE LAW CORNER

Corporate Law Corner started in May,
1988 with Swati Mayekar as the contributor. Anil J Sathe continued with to man
it for 12 years along with Sunil Kothare (7 years), R K Tanna (3 years) and
Jayant Thakur (3 years). Pooja J Punjabi has been carrying the feature since
May, 2017.

The aim of the feature is to digest
decisions given under the Companies Act that are relevant and useful and those
that lay down principals. Since the advent of Insolvency and Bankruptcy Code,
decisions given thereunder are also being covered.

12. Gaurang Balvantlal Shah vs. Union of India [2019] 101 taxmann.com 261 (Gujarat) R/Special Civil Application Nos. 22435 of 2017 And Others Dated: 18^th December, 2018

Section 164 of Companies Act, 2013 – Section 164 is
prospective in application and would cover defaults committed from financial
year 2014-15 and onwards – The section does not apply to filings required to be
made in respect of financial year 2013-14

Section 154 of Companies Act, 2013 – DIN of a director
cannot be deactivated or cancelled merely because one of the companies in which
he is a director was struck off from the register of companies maintained by
ROC – DIN can be cancelled or deactivated only in circumstances specified in
Rule 11 of Companies (Appointment of Directors) Rules, 2014

FACTS

G was a director of K Co, a
private company along with various other companies. After due notice from
Registrar of Companies (“ROC”), name of K Co was struck off from the register
of companies and it was dissolved on 21.06.2017. Ministry of Corporate Affairs
(“MCA”) on 12.09.2017 published a list of directors associated with struck off
companies u/s. 248 of the Companies Act, 2013 (“the Act”) on its
website which inter alia included the name of G as a “disqualified”
director. As a consequence of publication of the above mentioned list,
Directors Identification Number (“DIN”) of G was deactivated. G accordingly
filed a petition before the High Court as a result of inability to file
documents for other non-defaulting companies.

MCA challenged the petition
by submitting that G was disqualified by operation of law and upon fulfilment
of the criteria contained in section 164(2)(a) read with section 167(1)(a) of
the Act.

G on the other hand
submitted that the list published on the website was in violation of principles
of natural justice. Further, section 164 which came into effect on 01.04.2014
could only apply prospectively. Thus, the three financial years beginning from
1.4.2014 would be financial year 2014-15 to 2016-17 and the date for filing
financial statements for the third financial year (1.4.2016 to 31.3.2017) was
30.10.2017 (with regular fees) and 27.07.2018 (with additional fees u/s. 403
which provides for additional period of 270 days). Hence, no default attracting
disqualification u/s. 164(2) could be said to have taken place before the said
dates. Further, disqualification if any, would not affect the right to continue
as directors in other non-defaulting companies.

MCA on the other hand
argued that section 164(2)(a) would cover in its ambit filing of financial
statements and annual returns falling due after 01.04.2014, which would include
annual returns for the year 2013-14 as well. Further, disqualification happens
pursuant to the operation of law and the section only enumerates the
disqualification as a consequence statutorily provided for non-compliance with
section 164. Thus, the vacation of office is by operation of law where no
hearing is contemplated.

HELD

The High Court analysed the
provisions contained in section 164, 167, 92, 96, 137 and 403 of the Act along
with Companies (Appointment of Directors) Rules, 2014 (“the Rules”). It was
observed that section 164(2) speaks about the ineligibility of the director,
who is already working as a director or has worked as a director in the past,
in the company which has committed defaults as mentioned therein, to be
reappointed as a director of that company or appointed in other company. As
such, there was no procedure required to be followed by the respondent
authorities for declaring any person or Director ineligible or disqualified
under the said provision. The ineligibility was incurred by the person/director
by operation of law and not by any order passed by the MCA / ROC and therefore,
adherence of principles of natural justice by MCA / ROC was not warranted.

Further,
High Court held that section 164(2)(a) being prospective in application and
effective with effect from 01.04.2014, the three financial years contemplated
in the said provision would be 2014-15, 2015-16, and 2016-17 only. Application
of the section to financial year 2013-14 would tantamount to giving effect to
the section retrospectively.

In the facts of the present
case, AGM for financial year 2016-17 could be held up to 30.09.2017, and the
annual returns could be filed within 60 days and financial statements within 30
days of holding of such AGM i.e. up to 30^th of November and 30^th
of October 2017 respectively. Under the circumstances, the Director would incur
disqualification or would become ineligible to be reappointed as a Director of
a company or appointed in other company for a period of five years, for the
defaults u/s. 164(2)(a), only after 30^th of October or 30^th
of November, as the case may be, of the year 2017. Hence, the impugned list
dated 12.9.2017 showing G as disqualified for a period of five years from
1.11.2016 to 31.10.2021, was held to be not only premature, but untenable in
law.

With respect to deactivation
of DIN of G by MCA, it was observed that Central Government or Regional
Director or any authorised officer of Regional Director may, on being satisfied
on verification of particulars of documentary proof attached with an
application from any person, cancel or deactivate the DIN on any of the grounds
mentioned in Rule 11. The said Rule 11 did not contemplate any suo motu powers
either with the Central Government or with the authorised officer or Regional
Director to cancel or deactivate the DIN allotted to the Director, nor any of
the clauses mentioned in the said Rule contemplates cancellation or
deactivation of DIN of the director of the “struck off company” or of
the Director having become ineligible u/s. 164 of the Act.

MCA was directed to restore
the DIN of G.

The High Court also
observed that if the company is struck off and stands dissolved u/s. 248 of the
Act, it could still realise the amount due to the company, as also it is
obliged to discharge the liabilities or obligations of the company.

13. Vijay Kumar Jain vs. Standard Chartered Bank [2019] 102 taxmann.com 14 (SC) Civil Appeal No. 8430 of 2018 Writ Petition (Civil) No. 1266 of
2018 Dated : 31^st January, 2019

Section
25 and 31 of the Insolvency and Bankruptcy Code, 2016 read with Regulations 24
and 35 of the Insolvency and Bankruptcy Board of India (Insolvency Resolution
Process for Corporate Person) Regulations, 2016 – Members of the suspended
board of directors have a right to attend the meeting of Committee of Creditors
and have access to documents used for deliberations therein including the
resolution plan

FACTS

R Co, the corporate debtor
was incorporated in the year 1986 and was a profitable company engaged in the
business of processing of oil-seeds and refining crude oil for edible use.
Standard Chartered Bank and DBS Bank Ltd. being the financial creditors of R Co
filed company petitions in December 2017 which were admitted by National
Company Law Tribunal (“NCLT”) and Interim Resolution Professional (“IRP”) was
appointed. V was a member of the suspended Board of directors and in his
capacity as such was permitted to attend the first meeting of Committee of
Creditors (“CoC”) held on 12.01.2018.

V was allegedly denied
participation in subsequent meetings and to challenge the same filed an
application before the NCLT in June 2018. By an order dated 01.08.2018, the
NCLT dismissed the application with liberty to the appellant to attend CoC
meetings but not to insist upon being provided information considered
confidential either by the resolution professional or the CoC. Against this
order, V filed an appeal before the Appellate Tribunal which recognised V’s
right to attend and participate in CoC meetings, but denied V’s prayer to
access certain documents, most particularly, the resolution plans. Thereafter,
an application for modification/clarification of the Appellate Tribunal’s order
was also dismissed.

V even executed a
non-disclosure undertaking whereby he agreed to indemnify the resolution
professional and keep information that is received as to the resolution plan
strictly confidential. However, in order to challenge the order of Appellate
Tribunal, present application was filed before the Supreme Court.

V submitted that they are
“participants” in the meetings of the CoC, albeit without voting
rights, yet, they are persons who, in order to participate effectively, must be
given the necessary documents so that their views can also be considered by the
CoC. On behalf of the resolution professional, it was argued that the terms
“committee” and “participant” are differently defined under
the Regulations and that participants are expressly excluded by Regulation 39
of Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for
Corporate Persons) Regulations, 2016 (“Regulations”).

HELD

Supreme
Court analysed and explained the entire statutory scheme laid down by the Code.
It was observed that though the erstwhile Board of Directors are not members of
the CoC, yet, they have a right to participate in each and every meeting held
by the CoC, and also have a right to discuss along with members of the CoC all
resolution plans that are presented at such meetings u/s. 25(2)(i) of the Code.

Supreme Court relying on Regulations
observed that every participant is entitled to a notice of every meeting of the
CoC. Such notice of meeting must contain an agenda of the meeting, together
with the copies of all documents relevant for matters to be discussed and the
issues to be voted upon at the meeting vide Regulation 21(3)(iii). Obviously,
resolution plans are “matters to be discussed” at such meetings, and
the erstwhile Board of Directors are “participants” who will discuss
these issues. The expression “documents” is a wide expression which
would certainly include resolution plans. Supreme Court upon a combined reading
of the Code as well as the Regulations held that members of the erstwhile Board
of Directors, being vitally interested in resolution plans that may be discussed
at meetings of the CoC, must be given a copy of such plans as part of
“documents” that have to be furnished along with the notice of such
meetings. So far as confidential information was concerned, the resolution
professional can take an undertaking from members of the erstwhile Board of
Directors, as has been taken in the facts of the present case, to maintain
confidentiality.

Resolution Professional was
thus directed to hand over a copy of the resolution plan to the members of the
erstwhile Board and convene a meeting of the CoC within two weeks thereafter,
which will include V and others as participants. The ruling of NCLAT was thus
set aside.

BCAJ Admin

Journal

Brieficles

Resources

About

Reach Us